As organizations continue to struggle to safely reopen their workplaces, many are discussing the possibility of mandating vaccines or providing incentives for getting a vaccine. Other organizations are concerned about the cost of hospitalizations and potential long-term medical treatment of employees who contract COVID-19.
One way to address these issues is to impose higher insurance premiums on employees who aren’t vaccinated—or, put another way, offer discounts to those who have received the vaccine. The Affordable Care Act (ACA), Health Insurance Portability and Accountability Act (HIPAA), and other federal laws generally prohibit insurance companies and employer-sponsored health plans from charging higher premiums based on health status. However, employers can set premium differentials and offer other incentives through wellness programs.
Several regulations come into play when setting up such a program. Employers should study their intricacies to ensure that their wellness programs satisfy federal requirements.
HIPAA divides wellness programs into two categories: participatory and health-contingent. In a participatory program, employees are rewarded for completing a task, such as diagnostic testing, regardless of the outcome. Although a vaccination incentive might appear to be a participatory program, it actually falls into the health-contingent category, because some employees are unable to participate due to underlying health conditions.
In a health-continent program, employees must meet a health-related standard. Health-contingent programs that are activity-based programs reward employees for completing an activity, while those that are outcome-based condition the reward on achieving a particular health outcome. Vaccination incentives are based upon receiving the vaccine and not on remaining free of COVID-19, so they are generally considered activity-based programs.
As a health-contingent activity-based program, vaccine incentives must meet the following requirements:
- The program must be reasonably designed to prevent disease and not used as a pretext to discriminate.
- The incentive must be limited to 30% of the overall cost of coverage when combined with all other health-contingent incentives except tobacco cessation.
- Plan participants must be notified of a reasonable alternative if they are unable to receive the vaccine due to medical conditions or sincerely held religious beliefs.
- The reward must be uniformly available to all similarly situated employees, and participants must be given an opportunity to qualify at least annually.
Under the ACA, employers with 50 or more full-time employees or full-time equivalents must offer health insurance that is “affordable” and provides “minimum value” to 95% of those employees and their children up to age 26. “Affordable” means that employee contributions for employee-only coverage must be less than a specified percentage of the employee’s household income. This value, established by the Internal Revenue Service (IRS), is set at 9.61% for plan years beginning in 2022.
Any reward or incentive offered under a wellness program, including for vaccine incentives, does not count toward a plan’s affordability. Furthermore, if the incentive is structured as an increased premium for unvaccinated individuals, the employer must use the higher rate to determine affordability for all employees.
Another option is to structure the incentive as a penalty in the form of an increased deductible—which could affect minimum value. To meet the minimum value requirement, the plan must cover at least 60% of the costs a plan participant would expect to incur.
The Americans with Disabilities Act (ADA) and Rehabilitation Act prohibit employers from asking employees about disabilities or requiring medical examinations unless these are “job-related and consistent with business necessity.” The U.S. Equal Employment Opportunity Commission (EEOC) has stated that an employer’s request for proof of vaccination is not a “medical exam or disability-related inquiry” under the ADA.
An employer may make such inquiries as part of a wellness program as long as the program is “voluntary.” In addition to meeting the HIPAA requirements, the program must not serve as a “gateway plan” to enhanced benefits.
On May 28, 2021, the U.S. Equal Employment Opportunity Commission (EEOC) issued guidance confirming that employers generally may offer incentives to encourage vaccination. In addition to reminding employers of ADA restrictions, the guidance sets limits on the size of incentives when the employer or its agent administers the vaccine.
In that case, the incentive must not be “so substantial as to be coercive.” Although those terms are not defined, earlier proposed rules suggest that “de minimis” incentives such as a gift card of modest value are acceptable.
This limitation on the size of the incentive does not apply to employers who request documentation that the employee has received the vaccine from a third-party provider. Furthermore, employers may offer incentives to employees who submit third-party documentation as to the vaccination status of family members. All such documentation must be kept confidential under ADA requirements.
Employers: Review Guidelines for Offering Incentives for Vaccination
Multiple federal laws dictate how employers may use wellness programs to encourage healthy behaviors and outcomes.
On October 4, 2021, the Departments of Health and Human Services, Labor, and Treasury jointly issued a set of Frequently Asked Questions regarding the ability of employers to offer incentives for COVID-19 vaccination. Employer-sponsored health plans may set discounts or surcharges based on vaccination status as long as they follow specific guidelines.
Employers should carefully review these guidelines before developing such a program.
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