The Potential Problem With Insurance Surcharges for Unvaccinated Employees

As the Delta variant continues to disrupt many employer plans for returning people to office, leaders are considering additional ways to help protect their workforce. Vaccine policies that were being evaluated by many organizations are now reality since the recently announced federal vaccine mandate. Under the mandate, employees at companies of 100 or more people will be required to either show proof of vaccination or test weekly for Covid-19. 

Even prior to the mandate, many companies looking to facilitate a faster and more reassuring return to the workplace had begun working to incent employees to get vaccinated or implementing company-wide vaccine mandates. 

With mandates, though, come penalties, and some organizations are considering health-benefit premium surcharges for unvaccinated employees that participate in the company plan. Indeed, HR consultancy Mercer noted in August that health coverage surcharges for the unvaccinated are a tactic employers are reviewing as an alternative to a mandate. 

Whether using a surcharge as a requirement or an incentive, a key consideration that may not always appear so obvious is how that charge might affect employer obligations under the Affordable Care Act (ACA). 

The Impact of Premium Surcharges on ACA Requirements 

Under current ACA guidelines, the employee premium cost for a company’s lowest cost plan must meet certain affordability guidelines. In 2021, affordability is achieved when an employee’s cost for health insurance benefits is no more than 9.83% of that employee’s household income. 

As it stands now, if an employer adds a surcharge applied to its lowest cost health plan and that surcharge increases the premiums to a point where the cost is outside of the guidelines, the plan could be considered unaffordable and the employer could be penalized. 

That’s because if the employer fails to offer affordable coverage that provides at least minimum value, and the employee goes to the exchange and receives a premium tax credit, the employer may be subject to Penalty B under the ACA employer mandate. This could result in a $4,060 yearly penalty multiplied by the number of full-time employees who did not receive an affordable-coverage offer and who also receive a premium tax credit. 

While surcharges to incent certain health behaviors are not a new concept, it’s important to keep in mind that there is no current guidance in the ACA rules regarding surcharges for employees not vaccinated against Covid. 

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A tobacco surcharge, for example, is a fairly common penalty leveraged by employers to help mitigate healthcare costs resulting from smoking. Unlike a potential surcharge for unvaccinated employees, however, there are ACA rules for tobacco surcharges that guide employers in their programs and decisions. For example, if the employer offers a reasonable alternative, such as completing a tobacco-cessation program, then the surcharge is not included when calculating health plan affordability for ACA purposes.

While it’s possible that similar ACA rules may one day be applied to surcharges for unvaccinated employees, for the time being, employers considering these surcharges should do their due diligence to help ensure they don’t unwittingly render their health plan options unaffordable. 

How Employers Can Prepare 

As companies reexamine their coverage policies amid the new mandate, taking a holistic view of the medical-benefits program and related impacts will be important, including the potentially hidden risks related to ACA requirements if surcharges were to be implemented. 

For employers that decide to implement a healthcare premium surcharge on unvaccinated employees, a discussion with an ACA expert or tapping into the legal and HR expertise, as well as that of brokers and benefits consultants, can help leaders shape a vaccination policy that’s right for the organization — and its regulatory commitments under the ACA.  

Christy Abend has spent more than two decades working in the talent, HR, and product management space, with a concentration in health and welfare benefits and a focus on employer regulatory alignment. Her background and interests facilitate her work on the ACA products offered by Equifax Workforce Solutions. Abend holds a SHRM-SCP certification as well as Group Benefits Associate designation CEBS.

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