Imposing a Health Insurance Surcharge on the Unvaccinated

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Imposing a surcharge on unvaccinated employees would require employers to think through legal and policy implications.

ABSTRACT

COVID-19 hospitalizations amongst unvaccinated individuals cost billions of dollars. More employers are considering imposing a premium surcharge on employees participating in the corporate’s health plan who should not vaccinated against COVID-19. These employers see this approach as just like health premium surcharges for tobacco use, justifying the upper premiums on the idea that unvaccinated individuals could cause the plan to experience higher hospitalization and related costs. Nonetheless, imposing a surcharge on unvaccinated employees would require employers to think through legal and policy implications and the interests of their employees and their businesses. Employers should weigh their vaccination goals against these interests and consider whether a legally compliant surcharge would further their goals. Employers should fastidiously consider the prevailing culture amongst their employees and assess whether the policy can be effective and noncoercive. Premium surcharges could also be effective for some but not all employers.

Am J Manag Care. 2022;28(7):In Press

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Takeaway Points

  • Imposing a surcharge on unvaccinated employees would require employers to think through legal and policy implications and the interests of their employees and their businesses.
  • Critics of surcharge policies point to data from other health-contingent premium programs showing that they fail to alter individuals’ behavior.
  • Employers should fastidiously consider the prevailing culture amongst their employees and assess whether the policy can be effective and noncoercive.

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Unvaccinated individuals are at far higher risk of death and hospitalization from COVID-19.1 COVID-19 hospitalizations of unvaccinated adults in america cost $13.8 billion from June to November 2021.2 The monetary cost of treating unvaccinated individuals for COVID-19 is borne not only by patients but in addition by society more broadly, including taxpayer-funded public programs and personal insurance premiums paid by staff, businesses, and individual purchasers. With the provision of effective COVID-19 vaccines, employers are evaluating options to encourage worker uptake of vaccines with 3 goals in mind: to reduce transmissions, to lower absence resulting from illness, and to reduce COVID-19–related health care expenditures. One such option is to impose higher premiums for unvaccinated employees under their group medical plans.3

Some argue that raising insurance premiums is a justifiable tool to advertise COVID-19 vaccination because individuals who engage in riskier activities should pay higher premiums.4 This strategy in essence places unvaccinated employees in a higher-risk, higher-premium insurance pool and thereby more equitably redistributes health care savings and costs. Similar surcharges are imposed on tobacco users, for instance. Theoretically, higher premiums can incentivize individuals to behave more safely, improve overall health, and reduce health care costs.5 Despite the potential advantages from this policy, nonetheless, employers assessing this feature must make sure that they’re in compliance with applicable federal and state laws and have in mind additional policy considerations, because such a premium surcharge has the potential to backfire.

Legal Issues

The Department of Labor, HHS, and the Department of the Treasury issued guidance affirming that employers can “incentivize employees by offering discounts on monthly insurance premiums for individuals who have been vaccinated” or “impose insurance ‘surcharges’ for individuals who select to not be vaccinated.”6 Nonetheless, these surcharges must comply with existing Health Insurance Portability and Accountability Act (HIPAA) wellness guidelines for activity-based wellness programs.

HIPAA prohibits employers from excluding employees from eligibility or coverage under a bunch health plan based on their health status.7 HIPAA also prevents employers from charging employees higher premiums based on health status. Under HIPAA, “health status” encompasses “any health status–related factor,” which could include vaccination status. Nonetheless, HIPAA also provides an exception to supply employees financial incentives for participating in a “wellness program,” which must meet certain requirements under federal law.

Some consider it is feasible that an insurance premium surcharge would meet the wellness program standards. Nonetheless, insurers have never used vaccination status in setting premiums, so this novel approach can have unique implications. First, individuals may challenge surcharges for failure to make religious and other legally mandated accommodations. Second, employees may postpone getting vaccinated if the policy is implemented midyear, when there isn’t a requirement that employees meet the vaccination criteria by a given time through the 12 months. Rapid vaccination uptake is less likely under this scenario.

The Inexpensive Care Act (ACA) allows for wellness programs to be participatory or health contingent, but these 2 categories are regulated in another way.8 A participatory program has no limit on financial incentives but have to be open to any worker, and the reward for participation is probably not contingent on a health final result. Health-contingent programs, nonetheless, are outcome-based programs that reward participants only in the event that they achieve a health-specific goal. These programs must provide reasonable accommodation resulting from a medical condition. HIPAA and the ACA limit the full financial incentives for such programs to not more than 30% of the full cost of health coverage.

Alternatively, the ACA also imposes health care affordability requirements that limit the quantity that an employer can charge for medical insurance. Experts warn that any premium surcharge or discount have to be included within the ACA health care coverage affordability determinations. A considerable surcharge for unvaccinated employees may risk violating provisions of the ACA.

As well as, the Americans With Disabilities Act (ADA) protects individuals from discrimination on the idea of disability.9 Financial incentives—including penalties and surcharges—must not discriminate against staff who cannot get the vaccine resulting from a disability. Worker participation must even be voluntary, so employers requiring the vaccine for an incentive program must accommodate qualifying exemptions. Similarly, the Genetic Information Nondiscrimination Act requires that worker enrollment in wellness programs be voluntary, and employer incentives or penalties must not be coercive.10

State laws can also impose certain requirements on withholdings from worker paychecks. The Department of Labor takes the view that the Worker Retirement Income Security Act (ERISA)11 preempts these laws—but when an employer’s plan is just not subject to ERISA, then the employer may have to contemplate whether these laws affect its ability to impose a recent surcharge on worker contributions through the middle of a plan 12 months.

Finally, Title II of the Civil Rights Act of 1964 can also apply.12 Policies, including related surcharges, cannot discriminate against staff based on race, color, religion, sex, or national origin. Thus, an employer will need to guage any claim from an worker that the vaccination surcharge interferes with a civil right, comparable to a request for a spiritual accommodation.

Policy Considerations

Employers have a justified incentive to guard employees from the danger of COVID-19 and to mitigate the associated fee of COVID-19 hospitalizations. Premium surcharges would likely survive legal challenges in the event that they follow the federal regulations, nevertheless it stays unclear whether surcharges actually encourage employees to get vaccinated quickly.

Critics of surcharge policies point to data from other health-contingent premium programs showing that they fail to alter individuals’ behavior.13 For instance, premium surcharges don’t are likely to increase cessation amongst tobacco smokers14 nor decrease weight amongst obese individuals.15 Others disagree with this comparison. Behavior comparable to smoking cessation and weight reduction requires long-term lifestyle changes, whereas getting vaccinated requires comparatively less discipline. Nonetheless, no empirical research provides strong evidence that tying vaccination status to premiums increases vaccination rates.

Some also argue that, unlike smoking and obesity, COVID-19 is an infectious disease, and due to this fact vaccination ought to be treated in another way. Chronic illnesses comparable to obesity and lung cancer also don’t overwhelm hospitals in waves like COVID-19 does. Alternatively, premium surcharges can also pose a risk that individuals who cannot afford the surcharge may discontinue coverage entirely, cutting off their access to family physicians and other primary care providers who could be trusted sources of data in regards to the vaccine’s advantages. Higher cost sharing alone cannot overcome any of the structural barriers that hinder vaccination.

Implications for Employers

Some employers are moving beyond surcharges to easily mandate COVID-19 vaccinations on the condition of employment. That approach comes with its own set of issues and risks. Nonetheless, organizations selecting a health plan premium surcharge wellness program approach must consider many legal and policy requirements. Yet employers are in a singular position to balance the financial burden of health care costs, the health and safety of their workforce and customers, the legal implications of imposing a surcharge, and the interests of their employees.

One employer, Delta Airlines, began charging $200 in additional monthly medical insurance premiums for unvaccinated employees. Delta has required all recent employees to be vaccinated and now reports that 75% of its employees are vaccinated.16 Delta reported that after announcing the premium surcharge, every day vaccination requests have “increased 5-fold.” Although Delta’s self-reported results are encouraging, especially considering that neither tobacco surcharges nor wellness programs aimed toward other behavior have been particularly successful at reversing bad habits, further investigation is warranted into how Delta’s premium surcharge directly contributes to COVID-19 vaccine uptake and whether the experience is generalizable to other organizations.

Other employers have hesitated to mandate COVID-19 vaccinations for all employees. Imposing a surcharge on health premiums for the unvaccinated appears less coercive, leaving the selection to employees. Still, employees may resist the policy, so employers facing staffing challenges will probably want to plan for potential consequences, comparable to worker resignations, difficulty in recruitment, or residual resentment that premium surcharges are also coercive. For the last point, employers have to be careful not to interact in incentives “so substantial as to be coercive” for people with disabilities that will violate the ADA.

Employers who resolve to impose a surcharge also needs to consider whom the surcharge would apply to. Many employees participating in employer-sponsored health plans pay for his or her spouses or other dependents to be covered under the plan. Employers will need to contemplate whether the surcharge will apply to everyone on the health plan or simply their employees.

Conclusions

Imposing a surcharge on unvaccinated employees would require employers to think through legal and policy implications and the interests of their employees and their businesses. Employers should weigh their vaccination goals against these interests and consider whether a legally compliant surcharge would further their goals. Employers should fastidiously consider the prevailing culture amongst their employees and assess whether the policy can be effective and noncoercive. Premium surcharges could also be effective for some but not all employers.

Creator Affiliations: Center for Health Policy and Media Engagement, George Washington University School of Nursing (YTY), Washington, DC; Department of Health Policy and Management, George Washington University Milken Institute School of Public Health (YTY), Washington, DC; Department of Health Services Policy and Management, University of South Carolina (BC), Columbia, SC.

Source of Funding: None.

Creator Disclosures: Dr Chen serves on the board of trustees of Kaohsiung Medical University, a not-for-profit university with a tutorial teaching hospital in Taiwan; nonetheless, the university has no financial interest on this material. Dr Yang reports no relationship or financial interest with any entity that will pose a conflict of interest with the material of this text.

Authorship Information: Concept and design (YTY, BC); drafting of the manuscript (YTY, BC); critical revision of the manuscript for necessary mental content (BC); and supervision (YTY).

Address Correspondence to: Y. Tony Yang, ScD, LLM, MPH, George Washington University, 1919 Pennsylvania Ave NW, Ste 500, Washington, DC 20006. Email: ytyang@gwu.edu.

REFERENCES

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14. Friedman AS, Schpero WL, Busch SH. Evidence suggests that the ACA’s tobacco surcharges reduced insurance take-up and didn’t increase smoking cessation. Health Aff (Millwood). 2016;35(7):1176-1183. doi:10.1377/hlthaff.2015.1540

15. Lewis A, Khanna V, Montrose S. Employers should disband worker weight control programs. Am J Manag Care. 2015;21(2):e91-e94.

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