Can Employers Charge Unvaccinated Employees More For Health Insurance?

COVID-19
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Vaccines for the coronavirus have been out for a while now, and one of them has already been fully approved by the U.S. Food and Drug Administration (FDA). Data also supports the conclusion that these vaccines are very effective in preventing hospitalization due to the coronavirus.

Given how well the coronavirus vaccines work, many employers want their employees to get vaccinated. The problem is that many of their employees don’t want the vaccine. Employers have tried to convince their employees with incentives, but that hasn’t produced the desired results. Now, with the help and encouragement of the White House, many employers are starting to impose vaccine mandates.

But not all employers are ready to take the step of requiring their employees to get vaccinated. Some are taking the incremental and seemingly less coercive step of allowing employees to remain unvaccinated, but pay more for their employer-provided health insurance coverage instead. A notable example is Delta Air Lines.

Delta Air Lines’ New Vaccination Policy

On August 25, 2021, Delta Air Lines (Delta) released a memo to its employees announcing new policies concerning unvaccinated employees. Some of the major changes include:

  • Unvaccinated employees wearing masks indoors and taking a coronavirus test each week while “community case rates are high.”
  • Coronavirus pay protection will only be available to fully vaccinated employees who have breakthrough infections.
  • Unvaccinated employees paying a $200 surcharge each month if enrolled in a Delta health care plan.

This article will focus on this last point. Delta claims the $200 surcharge is to offset the cost of treating employees with serious coronavirus infections. Delta states that the average hospital stay relating to the coronavirus costs Delta $50,000. But can Delta or any other employer have this type of surcharge? The short answer is yes, although there are plenty of considerations employers must be mindful of.

A Brief Overview of Health Insurance Employment Benefits

Employers offering health insurance to their employees have two major options. First, they can self-insure. Here, the employer acts like an insurance company by deciding what types of coverage to offer, collecting premiums from employees and paying out benefits when there’s a claim.

Second, the employer can purchase policies for their employees, but pay for all or most of the cost of these health insurance plans. Regardless of which approach an employer takes, most of them will be subject to multiple federal laws relating to how these employee benefits are to be administered.

Two of the most important laws for purpose of this article are the Affordable Care Act (ACA) and the Health Insurance Portability and Accountability Act of 1996 (HIPAA).

Both of these laws cover a lot of issues relating to health insurance and patient rights. But with concerning health insurance premiums, both laws prohibit employers from charging employees higher premiums for discriminatory reasons, including the employee’s health status.

So how’s Delta not in violation of these two laws? Because of an exception that allows employers to offer “wellness incentive programs.” These voluntary programs allow employers to offer penalties or rewards to employees who do (or don’t do) certain things concerning their health.

Employee Wellness Incentive Programs

When an employer provides its employees a group health plan, there are two types of wellness programs they can potentially offer. The first is a participatory wellness program. Generally speaking, the availability of this program does not depend on an employee’s health status or condition. An example of a participatory program would be an employer paying the membership fee at a local gym for participating employees.

The second type is the health-contingent wellness program. To participate, employees must satisfy a health-related standard to receive the benefit. For instance, employees who stop smoking or reach certain health milestones can receive a reward.

When offering either type of program, an employer must make it equally available to similarly situated employees. If an employee would like to participate in a program, but can’t due to a legally protected trait (like a disability), then the employer has to offer a reasonable alternative.

How do Wellness Programs Apply to Vaccines and Health Insurance Premiums?

An employer that bases an employee’s insurance premiums on their vaccination status can likely do so legally with a wellness program. The question is whether it needs to be through a participatory or health-contingent wellness program. Unfortunately, there are no federal regulations, case laws or agency guidance yet available to definitively answer this question.

Deciding which wellness plan to use can make a huge difference in an employer’s ability to recoup its financial costs for insuring its employees. If an employer uses a health-contingent wellness program, the health insurance premium rate increase would be limited to 30%. But if an employer offers a participatory wellness program, then the surcharge could be unlimited.

Practical Considerations for Employers

Broadly speaking, we’ve established that charging higher premiums to unvaccinated employees is legal, but it has to be done right. While it’s understandable that employers would rather penalize unvaccinated employees with higher insurance premiums as opposed to firing them, there are a variety of real-world factors to think about.

First, what happens if unvaccinated employees drop their health insurance coverage instead of getting vaccinated? If enough employees do this in a self-insured plan, it could hinder the employer’s ability to spread its insurance risk among its employees. Or, it might lead to the employee quitting and finding a job somewhere else where they can get health insurance coverage for less money.

But if these employees remained uninsured, it could lead to them being less likely to receive medical care. And if they still decide to see a doctor, it will put further financial strain on not just the employee, but the health care system.

Second, what kind of reasonable alternative will employers offer to employees that can’t get vaccinated? The ability and wiliness of employers to accommodate employees will be put to the test. For example, there are questions as to whether some of those seeking religious exemptions have a sincerely held religious belief preventing them from getting vaccinated.

Third, there’s the slippery slope concern. If an employer can charge an unvaccinated employee more for health insurance, can they charge a pregnant woman more for her health insurance? Although a key difference here is that getting pregnant doesn’t mean you’ll infect others with a contagious and deadly disease.

Fourth, how will an employer verify that their employees are vaccinated? Employers may ask for an employee’s vaccination status without violating the Americans with Disabilities Act of 1990 (ADA). But if the employer asks follow-up questions, that could constitute a disability-related inquiry. In that case, the employer’s inquiry would be subject to the ADA’s restrictions concerning employee medical information.

Bottom Line

Yes, employers may charge employees who refuse to get the coronavirus higher insurance premiums. However, such penalties must be a part of an employee wellness incentive program and the employer must offer reasonable alternatives if the employee has a legally protected reason for not getting vaccinated. And depending on the type of wellness program used, there are limits on how much more the employer can charge in higher insurance premiums.