Can employers charge higher group medical insurance premiums to unvaccinated employees? | Parker Poe Adams & Bernstein LLP
As many companies continue to struggle with low employee vaccination rates for COVID-19, some employers are evaluating charging higher premiums for unvaccinated employees under their group medical plans. These employers view this approach as similar to health premium surcharges for smoking, justifying the higher premiums on the basis that unvaccinated individuals could result in increased hospitalizations and related costs.
While there are no specific federal government guidelines yet regarding premium supplements for unvaccinated employees, employers should proceed with caution and consider various legal and practical implications when determining whether such premium differentials would be an appropriate approach for their workforce. For example, this type of premium rebate/surcharge should be designed to comply with wellness program rules under HIPAA and the Affordable Care Act – these rules limit the monetary rebate/penalty that can be offered through wellness incentives. All wellness incentives are considered together for this limit, and some employers may already have other wellness incentives in place (e.g., smoking supplement, etc.) that might leave little room for additional supplements. Additionally, employers must provide a “reasonable alternative standard” to avoid the surcharge for those who cannot be vaccinated for medical reasons. To avoid other potential discrimination issues, a reasonable alternative standard may need to be offered for other reasons such as religious objection. Questions arise as to what kinds of reasonable alternative standards would be practical.
Any premium supplement should also be designed to avoid conflict with the EEOC’s position that certain elements of the wellness plan violate the ADA’s prohibition against discrimination based on disability. Unlike tobacco use, severe COVID-19 could qualify as an ADA protected disability. The EEOC issued but later withdrew regulations on employer wellness plan rules, and its reaction to premium surcharges for unvaccinated employees is uncertain.
In addition, the surtax could also impact health care coverage affordability determinations for the employer’s tenure under the Affordable Care Act. In practice, employers may also want to consider how a premium will be received by the workforce, especially in industries that are already facing a shortage of staff.
As employers consider how best to encourage vaccination among their workforces, employers must also consider the legal implications, risks of employee claims, and practical considerations to determine if a surcharge is the right solution.