As the number of people receiving a COVID-19 vaccine has decreased, employers have tried to find ways to incentivize their employees to get vaccinated. While some employers have imposed COVID-19 vaccine requirements, others have searched for alternative methods to motivate employees to receive the vaccines. One method some employers have considered is imposing a surcharge on health insurance premiums for employees and their dependents who are unvaccinated. The Department of Health and Human Services, the Department of Labor, and the Department of the Treasury issued guidance this week that addresses COVID-19 vaccine premium surcharges.
The Health Insurance Portability and Accountability Act of 1996 (HIPAA) prohibits group health plans and insurers from discriminating against individuals based on a health factor. In general, these “non-discrimination” rules under HIPAA do not permit group health plans and insurers to vary benefits or charge higher premiums based on health factors such as vaccination status. However, there is an exception to the HIPAA non-discrimination rules for wellness programs.
Wellness programs that meet various legal and regulatory requirements may vary benefits and premium costs based on whether an individual has met a certain standard, even if the standard is related to a health factor. Wellness programs that require individuals to meet a standard related to a health factor in order to obtain a reward (including avoiding a premium surcharge) are health-contingent wellness programs. Health-contingent wellness programs must meet several requirements to be excepted from the HIPAA non-discrimination rules, which in summary include (1) a once-per-year eligibility requirement, (2) a limit on the size of a reward, (3) a requirement to be reasonably designed to promote health or prevent disease, (4) a requirement to have reasonable alternative standards or waivers, and (5) a disclosure requirement.
Health-contingent wellness programs are either activity-only or outcome-based programs. Activity-only programs require an individual to perform or to complete an activity related to a health factor to obtain a reward, but they do not require the individual to attain or maintain a specific health outcome. Conversely, outcome-based programs require an individual to attain or maintain a specific health outcome. Examples of activity-only programs include walking, dieting or exercising programs, while examples of outcome-based programs include programs that require individuals to achieve specific standards on biometric screenings.
Until this week, there was some uncertainty as to whether COVID-19 vaccine premium surcharges are activity-only or outcome-based programs. The distinction is important because activity-only and outcome-based programs are required to waive a surcharge or provide a reasonable alternative standard for avoiding the surcharge for different groups of employees. For instance, if a COVID-19 vaccine premium surcharge is an activity-only wellness program, it must either waive the surcharge or provide a reasonable alternative standard to qualify for avoiding the surcharge only for individuals for whom receiving a COVID-19 vaccine is medically inadvisable or unreasonable due to a medical condition.
However, if a COVID-19 vaccine premium surcharge is an outcome-based program, it must either waive the surcharge or provide a reasonable alternative standard to qualify for avoiding the surcharge for any individual who does not meet the initial standard. Therefore, if a COVID-19 vaccine premium surcharge program is an outcome-based program, its ability to increase employee vaccination rates will be limited as the program must offer a waiver or a reasonable alternative standard to any individual who does not receive a COVID-19 vaccine.
This week, the Department of Health and Human Services, the Department of Labor, and the Department of the Treasury, which are the agencies that enforce wellness program regulations, issued guidance indicating that they consider wellness programs with a COVID-19 vaccine premium surcharge to be activity-only programs. While the agencies did not provide an explanation as to the reasons a COVID-19 vaccine premium surcharge program is activity-only and not outcome-based, it is possible that the agencies determined such programs are activity-only because they require individuals to engage in the health-related activity of receiving a vaccination but do not require individuals to attain or maintain a specific health outcome as a result of the activity, such as not contracting or transmitting the virus.
Based on the agencies’ guidance, wellness programs with a COVID-19 vaccine premium surcharge that comply with applicable regulations are activity-only programs and thus must provide a waiver or a reasonable alternative standard only to individuals for whom it is medically inadvisable or unreasonably difficult to receive a COVID-19 vaccine.
An employer that wishes to implement a COVID-19 vaccine premium surcharge through its wellness program must carefully consider other stringent legal and regulatory requirements that govern wellness programs and should consult legal counsel before implementing the program.