Companies continue to look to mitigate their business risks by increasing COVID-19 vaccination rates, as unvaccinated employees are more likely to bring COVID-19 into the workplace and more likely to incur large medical costs from COVID-19 hospitalization. Moreover, unvaccinated employees are also more likely to miss work since they must quarantine after exposure, whereas those who are fully vaccinated can remain at work if exposed while they wait to observe symptoms.
A number of employers have implemented vaccine mandates, which have been shown to lead to high rates of vaccination with relatively few employees requesting exemptions or being terminated. But some states have taken steps to limit or prohibit vaccine mandates, and many employers are wary of moving forward with a mandate while federal regulations that preempt such state laws continue to make their way through the courts.
Given the uncertainty, employers are looking for other approaches to encourage employee vaccination, and many are evaluating the potential to implement a health insurance premium surcharge for those who are not vaccinated. Employers are well-advised to weigh operational considerations and likely effectiveness before deciding to move forward.
- Ensure that vaccine surcharges comply with regulations for wellness incentives.
Federal rules allow employers to charge different health insurance premiums, either surcharges or reductions, for a limited number of reasons. Such “wellness plan incentives” must comply with the Health Insurance Portability and Accountability Act (1996), as amended by the Affordable Care Act (2010). These rules limit the incentive to 30% of health care premiums (up to 50% if including a tobacco use surcharge) and require that employees are offered a “reasonable alternative standard” if they do not comply with the requirement. For instance, many employers charge a higher health insurance premium to cigarette smokers, but employees who use tobacco can avoid being subject to the surcharge by completing a smoking cessation program. Reasonable alternative standards must be clearly communicated to employees and their dependents.
- Design a reasonable alternative standard for employees who opt out of vaccination that will genuinely improve workplace safety.
Some reasonable alternative standards, like those for many wellness programs, only require an employee to complete a one-time educational program. This is easy to administer; however, educational programs are unlikely to be effective at substantially increasing vaccination rates or changing employee behavior. Some companies might want to consider masking as an acceptable reasonable alternative standard, but with the increased transmissibility of the Omicron variant, many workplaces will require masks of all employees.
The best reasonable alternative standard to reduce the chance of COVID-19 exposure in the workplace is frequent testing. A reasonable alternative standard of regular testing is not easy to administer, though. The testing laboratory must notify the payroll administrator of the employee’s compliance with the testing standard regularly, and the payroll administrator might need to make multiple changes during a plan year. While current federal rules allow the cost of testing to be borne by the employee, some states require employers to cover such an expense.
- Evaluate your current workforce vaccination status and measure the effectiveness of your program.
Consider the current vaccination status of your workforce, including anticipated new hires if you anticipate growth or employee turnover. Also, consider what portion of your employees opt out of your medical benefits and thus would not be subject to surcharges. Surcharges will likely have the least effect at companies that have a notable rate of employees who opt out or are ineligible under your plan.
Many behavioral economic “nudges” have impacts that are different than expected. For instance, behavioral economists were enthusiastic about well-designed lotteries to encourage vaccination. But these were ineffective at increasing vaccination rates; in fact, states with lotteries or financial incentives had a steeper drop-off in vaccination rates than states that did not have such programs in place. Design the evaluation program before the vaccination surcharge is put in place so that you can adjust the program based on its impact.
- Add flexibility to any surcharge program so that previously unvaccinated employees can eliminate their surcharge when they are vaccinated.
Employers often deploy wellness plan incentives on a plan year basis, which would provide no incentive to get vaccinated until the following year’s open enrollment. A well-designed vaccine surcharge program would allow employees to have surcharge removed throughout the year shortly after an employee is vaccinated.
- Communicate the health insurance premium surcharge for unvaccinated employees early and often.
Incentives work only if employees understand them, and a vaccination mandate requiring multiple injections with the opportunity for exemptions is especially difficult to communicate. Premium surcharges are also combined with other payroll deductions, and they are not especially visible to most employees throughout the year. The most effective communications can focus on peers getting vaccinated and the potential to prevent financial and health loss. Resources for communications are available from the Health Action Alliance and the Centers for Disease Control and Prevention.
- Be mindful of the potential impact of a health insurance surcharge on health equity.
Vaccine surcharge programs can exacerbate existing disparities. Lower-wage employees and those with lower educational levels are most likely to remain unvaccinated and are sometimes more poorly positioned to navigate reasonable alternative standards. Employers can be sure that educational materials are culturally appropriate and available in multiple languages, and they can recruit co-workers from diverse backgrounds to serve as influencers in this effort.
- Keep up all other efforts to promote vaccination and keep employees safe.
Vaccination surcharges could nudge some employees to get vaccinated but are less likely to be effective if employers fail to provide scheduling flexibility and paid time off for vaccination. Vaccinations are just one part of the effort to protect the workplace from COVID; likewise, surcharges should be just one element of a comprehensive approach to increase vaccination rates and keep workers safe.
Other ways to promote employee safety include decreased employee density, use of effective masks and improving ventilation systems.
Employers should be aware that denying benefits to employees who are not vaccinated is prohibited by law. A health plan that denied coverage for a hospitalization for an unvaccinated member would not comply with HIPAA. And denying sick leave to those who are unvaccinated can backfire; unvaccinated individuals who are not offered sick leave might be less likely to stay home when they are contagious.
Employer interest in health insurance premium surcharges for the unvaccinated is increasing given the current uncertainty around vaccine mandates. The decision to implement vaccine surcharges likely will vary by employer, based on overall benefits strategy, characteristics of their workforce and operational considerations. For those employers implementing premium surcharges, following these considerations bolsters the likelihood that surcharges will increase vaccination rates and improve workplace safety.