What You Should Know About COVID Related Health Insurance Surcharges

• Sharlyn Lauby


• 21 Oct 2021

Estimated reading time: 11 minutes

You’ve probably seen the announcements lately about organizations (most notably Delta Air Lines) deciding to charge employees who are unvaccinated for COVID-19 a “surcharge” on their health insurance premium. I’ve been curious about this, as I’m sure you are too. Not just in the context of COVID but health insurance surcharges in general.

So, I asked my friend Carrie Cherveny if she would share her insights. Carrie is senior vice president of strategic client solutions in HUB International’s risk services division. In her role, Carrie works with clients to develop strategies that ensure compliance and risk mitigation when it comes to insurances such as health and welfare programs and employment practices liability. She has graciously helped us throughout the pandemic to understand the matters that organizations need to consider. I love her insights on this article about providing employee with current COVID information. 

As always, please don’t forget that Carrie is a lawyer, and her comments shouldn’t be construed as legal advice or as pertaining to any specific factual situations. If you have detailed COVID questions, they should be addressed directly with your friendly neighborhood labor and employment attorney.

Carrie, thanks so much for being here. Let’s start with a definition. What’s an insurance surcharge?

[Cherveny] Employers may offer incentives or impose surcharges.

• Incentives may take the form of a discount allowing employees who participate in the wellness program to pay lower rates for coverage.
• Surcharges may be added to the cost of coverage for those who do not participate in the wellness program.

Either option is viable, and the result is the same, except that certain individuals respond more positively to the ‘carrot’ while others respond more positively to the ‘stick’.

Can employers implement surcharges? If so, what’s a non-COVID related example?

[Cherveny] Employers may implement a health insurance surcharge program. For example, it is very common for employers to impose a health insurance premium surcharge for employees who did not complete their annual physical and biometric screening. Likewise, many employers impose health insurance premium surcharges for employees that do not engage in tobacco cessation programs and/or are active smokers.

While employers may implement a surcharge program, employers should proceed with caution. The rules regarding the premium structure program are dependent on the actual design. The Health Insurance Portability and Accountability Act (HIPAA) wellness rules regulate incentive and surcharge programs. The HIPAA regulations divide wellness programs into two categories: (1) participation only programs; and (2) health-contingent programs. Health contingent programs are further divided into activity-only programs and outcomes-based programs.

Participation Only Programs are programs that are available without regard to health status. These programs may or may not include an incentive for participating in the program. However, if an incentive is included, it cannot be based on an individual satisfying a health standard. Examples of this type of program include a gym membership reimbursement and a health risk assessment (not tied to achieving any particular outcome). Participation only programs must be made available to all similarly situated individuals.

Health Contingent Programs on the other hand require an individual to meet a certain goals or criteria related to a health factor. A health contingent program may be either an: (1) activity-only program; or an (2) outcomes-based program. Activity-only programs typically require individuals to perform or complete an activity related to a health factor to earn the incentive. Examples include COVID vaccine incentive and surcharges, walking and exercise programs, or giving an incentive for employees getting a physical, regardless of the results. Outcomes-based programs require individuals to attain or maintain a specific health outcome. Examples include programs requiring individuals to attain certain blood pressure, cholesterol, or body mass index (BMI) results. No matter the type of program, the following conditions must be met by any health contingent program:

• Individuals must have the opportunity to qualify for the incentive at least once per year
• The total incentive for all health-contingent wellness programs must not exceed 30% of the total cost of employee only coverage (noting however that the maximum incentive may increase to 50% when tied to tobacco use and the plan relies solely on an affidavit (i.e., no testing for nicotine or cotinine) stating whether the individual is a tobacco user)
• The program must be reasonably designed to promote health and prevent disease
• All similarly situated individuals must be eligible for the full incentive, which means the plan must allow for a reasonable alternative standard (i.e., an opportunity for individuals to earn the incentive via alternative means)
• The plan must disclose all terms of the program, including the availability of a reasonable alternative standard.

COVID vaccine incentive and surcharge programs tied to the health plan are a ‘health contingent activity-only’ wellness plan. Therefore, employers adopting vaccine health plan incentives and surcharges should design their program to comport with the above five requirements. Moreover, activity-only programs must offer a reasonable alternative to an employee when the applicable standard is unreasonably difficult due to a medical condition, or it is medically inadvisable to attempt to satisfy the applicable standard.

If employers are considering an insurance surcharge, what are the advantages and disadvantages?

[Cherveny] Integrating an incentive or surcharge program into the group health and welfare plan comes with significant complexities.

Determining the reasonable alternative standard in a health contingent, activity-based program. Determining the reasonable alternative standard can be a challenge – especially for COVID vaccine programs. For example, many employers are offering weekly COVID-19 testing as a reasonable alternative. However, regular testing will increase costs. Generally, most carriers decline to cover regular testing because they view it as part of an employment requirement or public health surveillance rather than part of the health plan. Health plans are not required to cover testing for employment or public health surveillance purposes. Therefore, employers should consult with their insurance carriers or third-party administrators (TPAs) prior to adopting a reasonable alternative standard that involves regular testing.

If the carrier or TPA will not pay for the tests, the employer will have to provide the testing at no cost to employees in some other fashion. Other reasonable alternatives may include mask wearing, social distancing, staggered shifts, adjusting workspaces, or working from home. The HIPAA rules do not allow the employer to charge for the reasonable alternative standard.

Structuring the Incentive. Most commonly, the incentives provided by employers with wellness programs take the form of premium differentials. For example, an employer may offer employee-only coverage for $150 per month to all employees and offer this same coverage for $100 per month to employees who participate in the wellness program. In this example, the wellness program incentive is $50 each month. In some cases, incentives may be structured as plan design changes (e.g., a higher deductible for employees who are not vaccinated).

Bottom Line: while providing the incentive through the health plan is technically possible, we (at HUB International) do not recommend it. Key reasons for this include:

• If the employer’s primary concern is workplace safety, a health plan incentive will not reach all employees since it excludes employees not enrolled in the health plan.
• It adds otherwise avoidable regulatory requirements and complexities to the group health plan on top of the (previously discussed) Americans with Disabilities Act (ADA), Title VII of the Civil Rights Act, and Genetic Information Discrimination Act (GINA) requirements.
• It may be difficult to appropriately structure a reasonable alternative standard.
• For employers subject to the ACA’s employer mandate, a vaccination incentive’s dollar value requires on-going attention to ensure the plan is still affordable and/or providing minimum value under the ACA.

Are there any alternatives to a surcharge that might be worth consideration?

[Cherveny] At HUB International, we have been recommending that clients who are interesting in building a workplace vaccine program do so outside of the health plan. A ‘stand alone’ vaccine incentive program does not encompass the regulatory complexity of a program tied to the health and welfare plan. We’ve also recommended if the employer is building an incentive program, to make it completely voluntary to allow meaningful incentive amounts. More specifically, the employer may set incentives at any amount or design it chooses so long as:

• The employer vaccination program is voluntary;
• The employee may opt-out;
• The employee may receive the vaccine at a provider of his or her choice; and
• It is not integrated with the health and welfare program

Conversely, the employer’s incentive options are significantly limited if the employer administers the vaccine onsite, either directly by the employer (if the employer is a healthcare provider) or through a contracted vendor, and it’s the employee’s only option. The Equal Employment Opportunity Commission (EEOC) instructs:

K.17. Under the ADA, may an employer offer an incentive to employees for voluntarily receiving a vaccination administered by the employer or its agent? (5/28/21) 

Yes, if any incentive (which includes both rewards and penalties) is not so substantial as to be coercive. [Emphasis added]. Because vaccinations require employees to answer pre-vaccination disability-related screening questions, a very large incentive could make employees feel pressured to disclose protected medical information. As explained in K.16., however, this incentive limitation does not apply if an employer offers an incentive to employees to voluntarily provide documentation or other confirmation that they received a COVID-19 vaccination on their own from a third-party provider that is not their employer or an agent of their employer.

The EEOC has not provided guidance regarding what qualifies as ‘substantial’ or ‘coercive’. Previously, the EEOC had issued guidance regarding the acceptable threshold for incentives. However, the EEOC has since rescinded that guidance. Employers offering onsite vaccines should proceed with caution with respect to the size of the incentive and should confer with employment counsel.

Last question. Should a company decide to implement a surcharge, what are a couple of tips for communicating the change?

[Cherveny] Out of the gate, be sure that any person designated to communicate with employees about their vaccine status and choices understand both the ADA and GINA limitations (and HIPAA and ACA, if the program is being offered as part of the group health plan). They must understand that any medical information shared by the employee remains confidential. They likewise should be familiar with the critical GINA warning requirement. They must also be sure not to ask any follow-up questions about the employee’s vaccination decisions and status. For example, asking an employee about their vaccine side effects or why they chose not to get vaccinated treads into prohibited medical inquiry territory (see ADA and COVID-19 Vaccine Medical Inquiries).

As employers develop their workplace vaccine plan, they should be sure to proactively engage employee populations that may have unique needs, concerns, and/or questions about the COVID-19 vaccine. This isn’t necessarily about convincing people to trust the vaccine; it’s about understanding employees concerns and questions and working together to find and reach a common goal. Below are strategies employers may consider:

• Workplace taskforce: Form a COVID-19 vaccine, health and safety task force comprised of employees from across the organization (not just management or leadership) who can help mold and shape a program most suited to your employee population and culture.
• Cultivate internal leadership: Identify company leaders and influencers in your employee population, who come from the same communities as your employees, to discuss the importance of vaccinations or share their personal experience with the vaccine.
• Paying attention: Listen. Really listen to your employees and their concerns and identify resources, programs, subject matter experts, and other measures that may be responsive to their concerns.
• Employee Resource Groups: If you have employee resource groups (ERGs), invite those leaders and members to participate in your company’s COVID-19 vaccine task force.
• Identify concerns: Pay attention to discussions on company message boards and other communication channels, and in interpersonal communications between managers and their teams. Listen for questions, concerns, and rumors and quickly provide facts.
• Utilize local resources: Reach out to local community organizations, healthcare provider networks, faith leaders, or other trusted individuals particularly those within diverse populations to seek their counsel and feedback on your company’s plan. Invite them to speak to your employees through recorded messages or town halls.
• Incorporate Public Resources: Invite your local public health department to send a representative who can speak with employees/workers, help answer questions, and provide clarity around COVID-19 vaccines.

A HUGE thanks to Carrie for sharing her knowledge with us. COVID continues to challenge us – even with vaccines in place. Don’t forget that HUB International is maintaining a COVID FAQ. This is a 200+ question FAQ updated regularly to consolidate the ever-changing and updated regulatory information across all aspects of employment including benefits, health and safety, and employee relations. 

Carrie’s comments made me realize that the decision to provide incentives or impose surcharges is a big one. It involves careful consideration – not only of the law, but in terms of what is currently happening in the organization.

Image captured by Sharlyn Lauby while exploring the streets of Fort Lauderdale, FL

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