Not So Fast: Thinking Twice Before Imposing Health Insurance Surcharges on Unvaccinated Employees

By Christopher Cavaliere and Haley Kole

Is your company considering imposing higher health insurance premiums on employees who have not received the COVID-19 vaccine?  If so, be careful!  Although some employers have been imposing health plan surcharges on smokers for years, it is not safe to assume that the same rules apply to surcharges placed on unvaccinated employees.  Before imposing a health plan surcharge on your unvaccinated employees, there are a multitude of legal requirements to consider.  To make matters worse, these requirements are not very clear, and there is currently very little governmental guidance to assist you.  So, with that being said, what are some of the major things you should consider before imposing a health plan surcharge on your unvaccinated employees?              

The “HIPAA”potamus in the Room: Complying with Wellness Program Requirements

Imposing a health insurance surcharge on unvaccinated employees likely creates a group health plan wellness program that must comply with a multitude of requirements.  Under HIPAA’s rules, these requirements depend on whether the program is a “participatory program” or a “health-contingent program.”  

Participatory programs are those that do not require any conditions for receiving an award (other than participation).  Participatory programs have very few requirements associated with them, except that they must be available to all similarly situated individuals.  Health-contingent programs, on the other hand, are those that base rewards on completing an activity related to a health factor.  If things were not complicated enough, health-contingent programs are further subdivided into (i) activity-only programs, and (ii) outcome-based programs.

At present, there is no clear guidance on whether a surcharge on unvaccinated employees is considered a participatory wellness program or a health-contingent wellness program.  However, many experts agree that it might be safer to classify such a surcharge as a health-contingent “activity-only” wellness program and to comply with the requirements associated with health-contingent “activity-only” programs.  If an employer’s vaccine-related surcharge is determined to be a health-contingent wellness program and it does not meet the applicable requirements, the employer can be fined up to $100 per day per participant.

In general, health-contingent “activity-only” wellness programs must comply with the following requirements:

• Participants must be able to qualify for the award at least once per year.
• Employers must provide employees with notice describing the program.
• If an employee is unable to receive the vaccine due to medical constraints, a reasonable accommodation must be provided.
• The wellness program must be uniformly available to all similarly situated employees. 
• The wellness program must be reasonably designed to promote health or prevent disease and cannot be a subterfuge for discrimination.
• The amount of the incentive cannot exceed 30% of the total cost of coverage under the plan (this limit is increased to 50% if the wellness program includes a tobacco cessation component). This incentive would need to be combined with any other “health-contingent” wellness program offered under the plan when determining whether the award exceeds the limit.

Family Matters: Being Careful about Family Members

In general, the Genetic Information Non-Discrimination Act (“GINA”) does not prevent employers from incentivizing employees to get vaccinated.  This is because the employer is only requesting proof of vaccination and not requesting prohibited genetic information.  However, things get more complicated when the vaccine is administered directly by the employer or by the employer’s agent (as opposed to by an independent third party).  Specifically, under GINA, when the vaccine is administered by the employer or the employer’s agent, the employer may not offer any incentives to an employee in exchange for a family member receiving the vaccine.  The reasoning here is because when the employer or the employer’s contractor administers the vaccine, the pre-vaccination medical screening questions would require the employer (or the employer’s agent) to obtain prohibited genetic information in the form of family medical history of the employee.  For these reasons, employers planning to impose a vaccine-related surcharge would be wise to ensure that the vaccine is administered off-site by an independent third party, with the employer simply requesting proof of vaccination and avoiding asking “why” a family member plan dependent did not get vaccinated.

To Ask or Not to Ask: What is the Question?

The Americans with Disabilities Act (“ADA”) applies to medical examinations and disability-related inquiries made by employers.  According to the EEOC, simply asking for proof of vaccination is not a medical exam or a disability-related inquiry.  For this reason, under the ADA, employers may offer an incentive (which includes both rewards and penalties) to employees based on vaccination status.  However, if the employer asks certain other questions, such as “why” an employee is not getting vaccinated, such questions may be considered a disability-related inquiry subject to the ADA.  Although the ADA’s wellness program rules are currently in flux, the EEOC appears to have taken the position that, in general, a wellness program that complies with the HIPAA rules will likely also comply with the ADA.   

With that being said, like the GINA rules discussed above, things get more complicated under the ADA when the vaccine is administered by the employer or by the employer’s agent.  Specifically, according to the EEOC, if the vaccine is administered by the employer or the employer’s agent, the incentive (which includes both rewards and penalties) cannot be so substantial as to be coercive.  The reasoning is that because vaccinations require employees to complete pre-vaccination disability-related screening questions, a very large incentive (or penalty) could make employees feel pressured to disclose protected medical information.   

In light of the above, employers planning to impose vaccine-related surcharges would be wise to simply request proof of vaccination status, avoid asking other vaccine-related questions where possible, avoid requiring employees to get vaccinated directly from the employer or the employer’s agent, and (to be safe) keeping the amount of the surcharge as low as possible.

Keeping it Locked Down: Protecting Employee Medical Information

The ADA requires that employers maintain the confidentiality of their employee’s medical information, which includes documentation or other confirmation of the COVID-19 vaccination. This requirement of confidentiality under the ADA applies regardless of whether the employee receives the vaccine from an independent third party or from the employer or its agent.  As discussed above, the ADA does not prevent employers from asking for or requiring employees to provide proof of vaccination.  However, such information (like all medical information) must be kept confidential by the employer and cannot be stored in an employee’s personnel file.  The same rule applies to documentation relating to an employee’s request for reasonable accommodations.

Let’s Be Civil: Handling Requests for Religious Accommodations

Title VII of the Civil Rights Act of 1964 (“Title VII”) requires that employer-sponsored benefits not discriminate against employees with sincerely held religious beliefs.  Consequently, employees who cannot get vaccinated due to sincerely held religious beliefs may have a claim that a vaccine-related health insurance surcharge violates Title VII.  For this reason, employers should be prepared to properly handle, document, and provide reasonable accommodations to employees who do not get vaccinated due to sincerely held religious beliefs (as well as to employees with medical conditions preventing them from getting vaccinated).    

The Kitchen Sink: Other Potential Legal Issues

Imposing a vaccine-related surcharge could potentially implicate several other legal issues outside the scope of this article.  Some of these issues include: state law requirements, the affordability requirements of the Affordable Care Act, Section 125 requirements for mid-year implementations, and navigating collective bargaining obligations.  Simply put: imposing a vaccine-related surcharge is no simple task and can potentially implicate the proverbial “kitchen sink” of legal issues.    

Let’s Get Real: Practical Implications

In addition to considering the many complicated legal issues involved, employers should also consider the practical impacts of instituting a vaccine-related surcharge on their employees.  Every workplace has its own unique culture, and each employer should consider their own cultural dynamics before imposing any such program.  Some practical questions employers may consider are: will imposing a vaccine-related surcharge actually result in more employees getting vaccinated?  Will imposing such a surcharge have the effect of damaging employee morale and alienating unvaccinated workers?  Will the program divide employees and create cultural problems that outlast the pandemic?  Is the employer prepared to properly handle and document a possible increase in employee requests for medical and religious accommodations?  Would it be easier to simply mandate the vaccine (subject to medical and religious accommodations)?     

Parting Thoughts

The legal requirements surrounding imposing a health insurance surcharge on unvaccinated employees are complicated and not entirely clear.  To make matters worse, there is very little guidance from the government to assist employers in this area.  For this reason, employers should proceed with caution before implementing any such program.  In addition to considering the several issues discussed in this article, employers should discuss the specifics of their plan with counsel to ensure their program complies with all applicable laws and regulations.