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Legal Alert: COVID-19 Plan Design

Updated September 1, 2021

As the U.S. continues to battle the COVID-19 pandemic, vaccinations of Americans age 12 and older are underway with approximately half of the eligible population vaccinated against the virus. In the States, there are currently three vaccines—one from Moderna, Pfizer and Johnson & Johnson—that are available, with distribution being handled at the state and local level.

To help combat the pandemic, many employers are implementing some level of a vaccine mandate at work, with some employers requiring all employees who return to the office to be vaccinated (ex: Google, Facebook and Anthem), requiring all new hires to show proof of vaccination (Disney) or merely requiring all their U.S.-based employee population to be vaccinated by a certain date (United Airlines). Members of the U.S. military will also be required to be vaccinated as a matter of national security to maintain military readiness.

As businesses are eager to return to the office and bring customers back on-site as applicable, many employers are wondering if they can modify their group health plan design to provide richer benefits for employees who are vaccinated.

Specifically, employers are wondering if:

  • They can limit eligibility for their group health plan to only employees who have received the vaccine (or who have a medical or religious waiver);
  • They can charge vaccinated employees lower premiums, co-pays or deductible limits (or, conversely, charge non-vaccinated employees higher premiums, co-pays or deductibles);
  • Exclude all COVID-19 treatment from group health plan coverage for employees who are not vaccinated (example: the plan would deny all claims for out-patient, in-patient or prescription drug treatment of COVID-19 for individuals who are not vaccinated;
  • Provide larger HSA, HRA, or FSA contributions to individuals who are vaccinated.

At the most basic level, employers must remember that although HIPAA does not prevent an employer or business from asking an individual to share their vaccination status, it does prevent group health plans and insurers from discriminating against individuals with regard to eligibility and health status-related factors.

Under HIPAA, health factors include:

  • Health Status
  • Medical Condition (Physical and Mental)
  • Claims Experience
  • Receipt of Healthcare
  • Medical history
  • Genetic Information
  • Evidence of Insurability
  • Disability

Under these rules, employers cannot exclude individuals from their health plan based on their health status or medical history (which would include COVID-19 vaccination status), or charge individuals different premiums based on the existence or absence of health factors.

The only time premium, co-pay or deductible differences based on health factors is permissible is when it is done in conjunction with a bona fide wellness program. Wellness programs can be complex, as they must comply with regulations beyond HIPAA, including the Patient Protection and Affordable Care Act (ACA), the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA). These regulations form the basis of much of the Department of Labor and EEOC guidance on COVID-19 vaccines, including rules regarding vaccine requirements and incentives.

Under existing guidance, wellness programs subject to DOL rules are considered either participatory or health-contingent. A participatory program is one that either has no reward or penalty (such as providing free flu shots) or simply rewards participation (such as a program that reimburses the cost of a membership to a fitness facility or the cost of a seminar on nutrition). These programs have less regulatory oversight than health-contingent programs. Employers who simply wish to provide a free vaccine clinic on-site would fall under these rules.

Health-contingent wellness programs are programs that base incentives or requirements in any way on an employee’s health status and are either classified as “activity only” or “outcome-based.” Health status includes vital statistics such as body mass index (BMI), blood glucose level, blood pressure, cholesterol level, fitness level, regularity of exercise and nicotine use.

If an employer wished to amend their group health plan to charge employees who are vaccinated lower premiums, co-pays, or deductible limits (or, conversely, charge non-vaccinated employees higher premiums, co-pays or deductibles), they would be subject to the rules for health-contingent wellness programs.

A wellness program with health-contingent requirements must meet all these basic requirements:

  • Give employees a chance to qualify for the incentive at least once a year;
  • Cap the incentive at 30 of the total cost of employee-only coverage under the plan, including both the employee and employer contributions, with a 50% cap for tobacco cessation or reduction (when wellness programs are also subject to ADA/GINA, incentives must not be so great as to compel participation, which is a fact-sensitive analysis);
  • Be reasonably designed to promote health or prevent disease;
  • Make the full reward available to all similarly situated individuals with a “reasonable alternative” method of qualifying for the incentive for some individuals (this would include employees who are unable to receive the vaccine due to a medical condition or who qualify for a religious exemption);
  • Describe the availability of the alternative method of qualifying for the incentive in written
    program materials.

Wellness programs that are subject to the ADA must also be designed to be “voluntary.” A wellness program is generally subject to the ADA if it involves a medical exam or disability-related inquiry. For example, if an employer’s wellness program includes a COVID-19 vaccine requirement and the employer intends to ask why an employee did not receive the vaccine as a condition of providing the reasonable alternative, the program must be ADA-compliant.

For a wellness program to be voluntary it must not:

  • Require employees to participate (in other words, the incentive or penalty must not be so great as to compel participation);
  • Does not deny coverage under any of its group health plans or particular benefits packages within a group health plan for non-participation; and
  • Does not take any adverse employment action or retaliate against, interfere with, coerce, intimidate or threaten employees within the meaning of Section 503 of the ADA.

These rules would prevent any design in which an employer attempted to use vaccinated status as a “gatekeeper” to richer or less expensive plans than those available to individuals who are not vaccinated. Wellness program rules also prohibit a plan design that limits health plan eligibility to only vaccinated individuals, and they prohibit denying COVID-19 treatment claims for individuals who are not vaccinated.

Furthermore, for a program to be considered voluntary, employers must provide a notice that clearly explains what medical information will be obtained, who will receive that medical information, how the medical information will be used, the restrictions on its disclosure and the methods the covered entity will employ to prevent improper disclosure of the medical information.

Calculating Incentives/Surcharges

To design the vaccine surcharge or incentive (both designs are permissible), employers must cap the incentive at 30% of the total cost of employee-only coverage under the plan, including both the employee and employer contributions and ensure incentives must not be so great as to compel participation, which is a fact-sensitive analysis. Financial incentives for wellness programs regulated by the ADA are limited to:

  1. 30% of the total cost of self-only coverage (including both the employee’s and employer’s contribution) of the group health plan in which the employee is enrolled when participation in the wellness program is limited to employees enrolled in the plan;
  2. 30% of the total cost of self-only coverage under the covered entity’s group health plan, where the covered entity offers only one group health plan and participation in a wellness program is offered to all employees regardless of whether they are enrolled in the plan; and
  3. 30% of the total cost of the lowest-cost self-only coverage under a major medical group health plan where the covered entity offers more than one group health plan but participation in the wellness program is offered to employees whether or not they are enrolled in a particular plan.

Employers with multiple plans and premium schedules who are looking for “easy math” might calculate the incentive against their lowest cost-employee only premium but offer that same incentive across all plans (which would inherently be under the 30% limit on the more expensive plans). This can also be done easily by calculating the cost of COBRA, minus the two percent administrative charge, as the cost of coverage.

Employers who already offer wellness programs with financial incentives or penalties must consider those programs in their calculation – the maximum reward or penalty for all components of the wellness program (for example, vaccine status plus meeting a certain BMI or blood pressure target) cannot exceed 30%. Tobacco cessation programs have a separate 50 percent limit- if an employer is offer rewards for being tobacco free and for being vaccinated against COVID-19, the COVID-19 vaccine incentive cannot, on its own, exceed 30% and combined the two programs cannot exceed 50 percent.

ACA Affordability Considerations

Employers must also consider the impact of the program on their affordability calculations if they are an applicable large employer (ALE) under the ACA, which is 50 or more full-time or full-time equivalent employees. All ALEs (including nonprofit) and government employers must offer minimum value (MV), affordable coverage to its full-time employees. Employer-provided coverage is considered affordable for an employee if the employee’s required premiums for the lowest cost self-only ACA compliant coverage does not exceed 9.83% (in 2021, as adjusted for inflation) of that employee’s household income.

When determining if the lowest-cost employee-only premium is affordable, the employer must use the lowest premium for individuals who are not vaccinated. Therefore, if they are offering a $30 monthly reward for being vaccinated against COVID-19, their lowest cost plan must raise its premium by $30 a month and report that increased dollar value on their 1095 forms. This could cause affordability concerns for employers who offer larger incentives.

Spouses and Dependents

Under previous rules, federal regulators made it clear that wellness programs that were governed by GINA could not be offered to dependent children, regardless of age and regardless of blood relation to the employee. Although some vaccine-related questions do not implicate GINA (ex: merely asking about vaccination status) follow-up questions in regard to medically necessary waivers could implicate GINA. Additionally, vaccines are currently only available to children over the age of 12.  Therefore, it is not recommended that employers implement surcharges or rewards for the vaccination of dependent children.

Spouses can be included in a vaccine reward or penalty program, so long as the program is properly designed. Calculating the incentive limit when including spouses has a few key considerations:

  • The limit for the surcharge or reward remains the same calculation, the 30% is calculated against employee-only rate, but up to 30% incentive can be offered to both an employee and the spouse.
    • Ex: if the 30% limit equaled $1200 (or $100 a month), it would be $1200 for the employee and $1200 for the spouse.
  • The incentive must be earned (or penalty incurred) on an individual basis. An employer cannot refuse to pay the employee the reward (or remove the penalty) because both the employee and the spouse did not both receive the vaccine- each individual must be treated separately, regardless of the dollar value of the surcharge.
    • Using the example above, an employer cannot offer either a $1200 or a $2400 reward (or penalty) that requires both the employee and spouse to receive the vaccine – it would either be $600 for the employee and $600 for the spouse, or $1200 for the employee and $1200 for the spouse.

HSA, HRA, or FSA Contribution Enhancements

Some employers are interested in providing vaccinated employees a greater FSA, HRA or HSA contribution than non-vaccinated individuals. Although this is a generally accepted practice as long as all wellness program regulations are followed, employers should be sure that any contribution falls within the annual regulatory limits, meets the “uniform coverage rule” that requires employer FSA contributions to be available at the start of the coverage period, and assures that appropriate non-discrimination testing is being done depending on the plan’s design. Given the strict tax regulations around these account-based plans, employers might find it administratively simpler to provide vaccinated employees with one-time taxable spot bonuses.

 

Practical Considerations

If an employer wishes to move forward with a plan design that charges employees who are vaccinated lower premiums, co-pays or deductible limits (or, conversely, charges non-vaccinated employees higher premiums, co-pays or deductibles) the employer will need to confirm that their health insurance carrier (fully insured) or third-party administrator (self-funded plans) can practically administer the plan with three sets of participants and two different designs:

Those who are vaccinated

Richer benefit

Those who are not yet eligible for the vaccine (under age 12) have a religious exemption or have a medical reason that precludes them from receiving the vaccine

Richer benefit

Those who are unvaccinated

Lower benefit

This design feature might not be administratively feasible for all carriers and TPAs. Employers should also consider the impact on company culture if their employees object to vaccines for personal reasons and understand that some employees might not support this program.

Employers must also consider how they wish to have employees submit their vaccine status. Asking for copies of their vaccine card, or asking the employee (and spouse, if applicable) to sign an attestation is permissible – and the collected data should be stored in a secure manner.

Employers should have a plan in place in the event they believe an employee has submitted a forged vaccine card or who has been dishonest in their attestation. Employers cannot reach out to providers or health insurance companies to “prove” the veracity of the employee’s stated vaccine status. Employers should treat potential vaccine fraud the same way they would treat other issues of employee misconduct. Employers should consider consulting with labor counsel to develop an appropriate policy or process to handle and investigate potential fraud.

Summary

Can an employer limit eligibility for its group health
plan to only employees who have received the vaccine (or who have a medical or religious waiver)?

Prohibited under existing regulations (penalty of
$100/day per applicable individual).

Can an employer charge vaccinated employees lower premiums, co-pays or deductible limits (or, conversely, charge non-vaccinated employees higher premiums, co-pays or deductibles)?

Permissible if done in conjunction with a properly designed wellness program, including ensuring the program is voluntary and designed with incentive limits in place, along with a statement that those limits are subject to change. Employers that are ALEs must ensure the incentive/penalty is reflected in their affordability calculations and reporting for ACA employer mandate purposes.

Can an employer exclude all COVID-19 treatment
from group health plan coverage for employees who are not vaccinated?

(Ex: The plan would deny all claims for out-patient, in-patient or prescription drug treatment of COVID-19 in individuals who refused to be vaccinated.)

Prohibited under existing regulations (penalty of
$100/day per applicable individual).

Can an employer provide larger HSA or FSA contributions to individuals who are vaccinated?

Permissible if done within existing regulatory guidance for wellness programs and additional applicable limitations and non-discrimination testing is considered.

 

The information contained herein should be understood to be general insurance brokerage information only and does not constitute advice for any particular situation or fact pattern and cannot be relied upon as such. Statements concerning financial, regulatory or legal matters are based on general observations as an insurance broker and may not be relied upon as financial, regulatory or legal advice. This document is owned by Alera Group, Inc., and its contents may not be reproduced, in whole or in part, without the written permission of Alera Group, Inc.

Updated as of 9/01/2021. 

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