Thinking About a Premium Surcharge for the Unvaccinated?

This past week a few big names, including Google and Facebook, announced plans to require all employees to get vaccinated for COVID-19 before returning to the office. And, while many employers are willing to take additional measures to increase vaccine levels, most employers continue to hold off on mandates because of potential employee relations issues that such a move might provoke. Now, with the Delta variant driving up infections and hospitalizations throughout the country – at the same time that vaccination rates have stalled – health coverage surcharges for the unvaccinated are a tactic employers are reviewing as an alternative to a mandate. 

The rationale for adding a surcharge to health insurance contributions for unvaccinated employees is seen as similar to that for a tobacco-use surcharge. If an employee is unvaccinated and contracts a COVID-19 infection, that creates higher claims costs, which can impact the employer’s bottom line, and mean higher future contributions for other employees. Beyond plan costs, there are the public health benefits of greater vaccination rates, in addition to workplace safety considerations.

The surcharge approach is intended to cause employees to change behavior voluntarily. While less draconian than a vaccine mandate, there are a few compliance issues that employers must consider. The employer would have to follow the analysis for vaccine incentives, as laid out by the EEOC. If the employer is involved with vaccination, or contracts with a third party to provide the vaccine to employees, the surcharge must not be so substantial as to be “coercive,” and consideration must be given to providing accommodation to those who are unable to get vaccinated due to a disability or sincerely-held religious belief.

Additionally, a vaccine surcharge will need to be compliant with the HIPAA/ACA rules related to wellness programs. The cautious approach will be to treat the incentive as “health contingent,” which means the surcharge must be limited and a reasonable alternative standard must be offered to those unable to get vaccinated. ACA affordability and state law restrictions related to vaccine status must also be considered.

Despite the concerns above, surcharges are a potential option, and we expect more employers to explore their viability. Employers are looking for options, but with labor shortages, vaccine mandates may remain a bridge too far. Adding a surcharge for the unvaccinated to a vaccine incentive program may be the next trend to gain momentum as employers seek to safely return employees to worksites and get their businesses back to normal.

Wade Symons
by Wade Symons

Partner, Mercer Health

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