Delta Airlines made the news this week by announcing it would require employees who have not received the COVID-19 vaccine to pay $200 more per month for their health care insurance. Even before Delta made this announcement, we were getting the question, “can an employer do this?” The answer is “yes” if the program is structured to comply with wellness program rules under the Health Insurance Portability and Accountability Act (HIPAA) and the Affordable Care Act (ACA).
Although we typically think of HIPAA as a privacy law, HIPAA also includes health nondiscrimination rules that generally prohibit an employer from charging employees higher health insurance premiums based on health factors. But under HIPAA regulations and the ACA, an employer can offer financial incentives under its health plan to individuals who participate in its wellness programs. A wellness program can include incentives for getting the COVID-19 vaccine, such as a premium surcharge for those individuals who are unvaccinated. A premium surcharge for unvaccinated individuals will have to comply with the following HIPAA/ACA rules:
- A participant must be given the opportunity each year to qualify for the reward (i.e., avoid the surcharge).
- The maximum reward for all health-contingent wellness programs (including the vaccine incentive) cannot be more than 30% of the total cost of the employee’s health coverage (both employee and employer contributions), though incentives tied to smoking can go up to 50% of the cost.
- The program must be reasonably designed to improve health or prevent disease.
- The program must meet uniform availability and reasonable alternative standards. A COVID-19 vaccination incentive program must include both of the following features:
- The program must provide a reasonable alternative activity (or waiver of the activity) for any individual for whom it is unreasonably difficult due to a medical condition or medically inadvisable to perform the activity (which can be verified with the individual’s personal physician, when it is reasonable to do so). Coming up with an alternative may not be easy, so a waiver may be the most practical solution.
- The full reward must be available to someone who completes the program or satisfies the reasonable alternative standard (or waiver of the standard). Depending on how the program is structured, if an employee who is paying the surcharge becomes vaccinated, the employee may be entitled to a refund (or credit) of the surcharges the employee has paid up to that point in the plan year.
- All materials that describe the wellness program must also describe the availability of a reasonable alternative activity/standard (or, if applicable, the availability of a waiver of the activity/standard).
In addition to the HIPAA/ACA wellness program requirements, you should also take into account the following:
- Information about the vaccinations will be subject to HIPAA privacy, security and breach notification rule requirements because the vaccine information is being collected as part of a health plan. If the employer (or its agent) is also administering COVID-19 vaccine shots, then requirements under the Americans with Disabilities Act (ADA) also apply, which may limit the amount of the incentive and impose additional confidentiality requirements (including a confidentiality notice requirement).
- Civil rights laws, such as Title VII, may also apply. Thus, you will need to evaluate any claim from an employee that the vaccination surcharge interferes with a civil right, such as a request for a religious accommodation.
- If you intend to roll this out before the start of a new plan year, you should check the plan documents governing your health and welfare plan to see what they say about mid-year changes in premiums and whether contribution amounts can change. Moreover, if the incentive results in a substantial surcharge to those who remain unvaccinated, the plan documents may give employees affected by the surcharge the right to disenroll from health plan coverage or elect a more affordable health plan option.
- State laws (like the Michigan Payment of Wages and Fringe Benefits Act) may impose certain requirements on withholdings from employee paychecks. The Department of Labor takes the view that the Employee Retirement Income Security Act (ERISA) preempts these laws — but if your plan is not subject to ERISA, then you may need to consider whether these laws affect your ability to impose a new surcharge on employee contributions during the middle of a plan year.
If you have questions about COVID-19 incentive programs or need assistance implementing a COVID-19 vaccination incentive program, Warner can help! Please contact Norbert Kugele, Stephanie Grant or any other member of Warner’s Employee Benefits/Executive Compensation Practice Group.
