New Federal Guidance on Health Plan Surcharges for the Unvaccinated

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New Federal Guidance on Health Plan Surcharges for the Unvaccinated

Many employers are considering applying surcharges to health care premiums in order to encourage employees to get vaccinated. If you are one of them, here is some information on how to do it without violating the discrimination rules in the Health Insurance Portability and Accountability Act of 1996 (HIPAA).

Surcharges and incentives for vaccinations are allowed under the HIPAA. However, they must fit the requirements of activity-only wellness programs as provided by the HIPAA. An activity-only wellness program notably typically requires limiting the surcharge to a maximum of 30% of the cost of the health plan. Employers must also provide a reasonable means for employees who should not receive the vaccine for medical reasons to avoid such a surcharge.

This is essentially what the U.S. Department of Labor, U.S. Department of the Treasury, and the U.S. Department of Health and Human Services provided employers in recent guidance issued by the departments. This answers some questions employers had as to what rules the HIPAA would apply to these surcharges, which many employers have considered since the FDA gave its full approval to one of the COVID-19 vaccines on August 23rd.

In general, employers cannot change the cost of premiums for their health plans in response to employees’ health. However, one exception to this rule is health-contingent wellness programs. A subcategory of these that is applicable to vaccination surcharges are activity-only wellness programs, and in order to qualify as this type of program, the following requirements must be met.

  • Employees must have the chance to qualify to avoid the penalty at least once every year.
  • The program must be reasonably designed to either prevent a disease or to promote health.
  • All similarly situated employees must be given a chance to qualify.
  • For those who cannot qualify for medical reasons, a reasonable alternative or waiver of standards must be available. This must be provided in the written materials for the program.
  • The surcharge mustn’t exceed 30% of the overall cost of coverage.

Many employers had assumed that surcharges for COVID-19 vaccines would simply qualify as participatory wellness programs. In this case, most of these rules would not have applied. However, this guidance clears this up along with most questions as to how a surcharge program may be enacted. 

Employers will want to remember that the same standards for affordability as provided under the Affordable Care Act will apply for determining whether coverage is affordable under this act. If a premium surcharge is applied, this greater premium amount will be used when determining whether the coverage is “affordable.” As always, when in doubt about any part of such a program, it is important to contact legal counsel.