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Can Employers Charge Higher Group Medical Insurance Premiums for Unvaccinated Employees?

    Client Alerts
  • August 29, 2021

As many companies continue to struggle with low employee COVID-19 vaccination rates, some employers are evaluating imposing higher premiums for unvaccinated employees under their group medical plans. These employers see this approach as similar to health premium surcharges for tobacco use, justifying the higher premiums on the basis that unvaccinated persons could cause the plan to experience higher hospitalization and related costs.

While there is not yet specific guidance from the federal government regarding premium surcharges for unvaccinated employees, employers should proceed cautiously and review various legal and practical implications as they consider whether such premium differentials would be an appropriate approach for their workforce. For example, this type of premium discount/surcharge would need to be designed to comply with the wellness program rules under HIPAA and the Affordable Care Act -- these rules limit the monetary discount/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., smoker surcharge, etc.) that could leave little room for additional surcharges. In addition, employers must offer 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 regarding what types of reasonable alternative standards would be practical.

Any premium surcharge also would have to be designed to avoid conflicts with the EEOC’s position that some wellness plan elements violate the ADA’s prohibition against discriminating on the basis of disability. Unlike tobacco use, severe COVID-19 could be viewed as a protected ADA disability. The EEOC issued but then withdrew regulations on employer wellness plan rules, and its reaction to premium surcharges for unvaccinated employees is uncertain.

In addition, the surcharge could also impact health care coverage affordability determinations for the employer mandate under the Affordable Care Act. As a practical matter, employers may also want to consider how a premium surcharge will be received by the workforce, particularly in industries already challenged by understaffing.

As employers review how to best encourage vaccination among their workforces, employers also should review the legal implications, risks of claims from employees and practical considerations in determining whether a premium surcharge is the right fit.