Employers Can Offer Premium Discounts To Incentivize COVID-19 Vaccination But Cannot Otherwise Deny Benefits To Unvaccinated Individuals

An employer can offer premium discounts to incentivize vaccination if it has a wellness program that meets certain requirements.

Under existing law, employer group health plans are generally prohibited from discriminating against individuals in benefit eligibility, premiums, or contributions based on health factors. Although employers cannot deny health benefits to unvaccinated employees, if the employer’s wellness program meets certain requirements, the employer’s program may allow premium discounts, rebates, or modification of otherwise applicable cost-sharing requirements.

On October 4, 2021, Centers for Medicare & Medicaid Services (CMS) issued FAQ guidance, in part, explaining that a group health plan (or health insurance issuer offering coverage in connection with a group health plan) can offer participants a premium discount for receiving a COVID-19 vaccination if the discount otherwise complies with the existing regulations governing wellness programs set forth in 26 CFR 54.9802-1(f)(3), 29 CFR 2590.702(f)(3), and 45 CFR 146.121(f)(3).

Under these regulations, a wellness plan with a premium discount that requires an individual to complete an activity related to a health factor, in this case obtaining a COVID-19 vaccination, to receive a discount must comply with the following five criteria:

1. The program must give eligible individuals the opportunity to qualify for the reward at least once per year.
2. The reward, such as a COVID-19 vaccine incentive, together with the reward for other health-contingent wellness programs with respect to the plan, must not exceed 30 percent of the cost of coverage, in most instances.
3. The program must be reasonably designed to promote health or prevent disease.
4. The full reward under the wellness program must be available to all similarly-situated individuals (which includes allowing a “reasonable alternative standard” or waiver of the regular standard for obtaining the reward for any individual for whom satisfying the regular standard is unreasonably difficult due to a medical condition or is medically inadvisable). For example, the wellness program may offer a waiver or the option to attest to following other COVID-19-related guidelines to individuals for whom vaccination is unreasonably difficult due to a medical condition or medically inadvisable in order to qualify for the full reward.
5. The plan or issuer must disclose in all plan materials describing the terms of the wellness program the availability of a reasonable alternative standard to qualify for the reward (and, if applicable, the possibility of waiver of the regular standard), including contact information for obtaining a reasonable alternative standard and a statement that recommendations of an individual’s personal physician will be accommodated.

The FAQs also confirm that a group health plan or health insurance issuer may not condition eligibility for benefits or coverage for otherwise covered items or services to treat COVID-19 on participants, beneficiaries, or enrollees being vaccinated. Benefits under the plan must be uniformly available to all similarly-situated individuals and any restriction on benefits must apply uniformly to all similarly-situated individuals and must not be directed at individuals based on a health factor. Accordingly, plans and issuers may not discriminate ineligibility for benefits or coverage based on whether or not an individual obtains a COVID-19 vaccination, except as to a wellness program incentive.

Under the Affordable Care Act’s (ACA’s) employer shared responsibility provisions, the lowest cost plan an employer offers to a full-time employee must be “affordable” otherwise the employer may have exposure to penalties.  The FAQs also indicate that wellness incentives related to the receipt of COVID-19 vaccinations are disregarded for purposes of determining whether employer-sponsored health coverage is affordable and vaccination surcharges are included in the affordability calculation. Therefore, the implementation of a vaccination incentive could impact whether an employer owes a shared responsibility payment under the ACA.

For example, based on the FAQs, if the individual premium contribution under a COVID-19 vaccination wellness program was reduced by 25 percent, this reduction is disregarded for purposes of determining whether the employer’s offer of that coverage is affordable for purposes of assessing liability for the employer shared responsibility payment. Conversely, if an individual’s premium contribution for health coverage under a COVID-19 vaccination wellness program is increased by a 25 percent surcharge for a non-vaccinated individual, that surcharge would be considered in assessing affordability.

Therefore, the FAQs clarify that, if the employer offers a premium incentive to employees who receive the COVID-19 vaccine, the employer is required to use the rate charged to individuals who do not receive the vaccine when determining whether the coverage is affordable. This may create an affordability issue, depending on the premium cost of the plan, the employer contribution, amount of any premium surcharge, and any cash in lieu of flex dollars.

Finally, the FAQs note that compliance with the above-discussed regulations in implementing a COVID-19 vaccination incentive is not determinative of compliance with any other applicable law, such as the Public Health Service Act, ERISA, the IRS Code, or other state or federal law, including the Americans with Disabilities Act and the Genetic Information Nondiscrimination Act. Employers should be mindful that the implementation of a COVID-19 vaccine incentive program is fact-specific for each employer. You should consult with LCW attorneys to discuss legal requirements applicable to your program.