Tag Archives: health insurance premiums

What to Consider Before Implementing a Health Insurance Surcharge for Unvaccinated Employees

Contribute by Kelly Haab-Tallitsch, September 7, 2021

stethoscope wrapped around health insurance policies, soft focus

The recent announcement that Delta Airlines will begin imposing a $200 per month health insurance surcharge on unvaccinated employees has prompted many employers to consider whether a similar surcharge may be an alternative to mandating COVID-19 vaccinations for employees.

But the myriad of laws governing group health plans require that employers tread carefully. This is an approach that comes with a multitude of regulatory requirements and may carry legal risks. Employers implementing a health insurance surcharge must comply with federal anti-discrimination laws requiring exceptions for medical conditions or a sincerely-held religious belief, and should consider the impact of a surcharge on the health plan’s affordability under the Affordable Care Act (ACA).

Exceptions for Medical Conditions and Religious Beliefs

Premium surcharges or other incentives tied to a group health insurance plan trigger the Health Insurance Portability and Accountability Act’s (HIPAA) wellness program rules.  HIPAA prohibits employers from charging employees different premiums based on a health factor; however, an exception exists for wellness programs, allowing employers to charge higher premiums or offer incentives to get employees to take certain actions or meet specific health-related goals, provided the wellness program meets certain requirements.

The requirements for wellness programs are different depending on whether a program is “participatory” or “health contingent.”  It is unclear whether a COVID-19 vaccination surcharge would be considered a “participatory” or “health contingent” wellness program. In order to avoid potential penalties for noncompliance, an employer should assume it is a health-contingent wellness program, similar to smoking cessation programs that impose a surcharge on smokers. Under a health-contingent wellness program an employer must offer a “reasonable alternative standard” to employees that are unable to receive the COVID-19 vaccine due to a medical condition. This means that these employees must be allowed to avoid the surcharge by meeting a different requirement. One example would be allowing an employee to avoid the surcharge by undergoing weekly or biweekly COVID-19 testing or by watching a video on vaccine safety and the dangers of remaining unvaccinated.

Under Title VII, employers must also provide an accommodation to an employee that is unable to receive the COVID-19 vaccine due to a sincerely-held religious belief.

ACA Affordability and Surcharge Limits

Under the HIPAA wellness plan rules, a surcharge cannot exceed 30 percent of the cost of employee-only coverage under the health plan. This is a fairly high limit and typically does not present an issue. But employers subject to the ACA employer mandate and considering surcharges should also confirm that the cost of the health plan including the surcharge still meets the ACA affordability requirements. In order to avoid triggering a penalty under the ACA, the cost for employee-only coverage under the lowest cost health plan option can be no more than 9.83% of the employee’s income. Depending on current health plan premiums, even a small surcharge can cause premiums to exceed the affordability threshold for lower wage employees.

Next Steps

An employer considering implementing a vaccine surcharge should consider the alternative standard(s) the employer is willing and able to offer employees who cannot receive the vaccine due to a medical condition or sincerely-held religious belief, taking into account the administrative requirements of the alternative standard (i.e., monitoring of weekly COVID-19 test results), and analyze the impact of the proposed surcharge on the employer’s compliance with the ACA affordability requirements. Employers should consult with employee benefits counsel before implementing a health insurance surcharge to ensure compliance.

Will Your Employees be More Interested in Health Insurance Subsidies than Your Group Health Plan?

Contributed by Rebecca Dobbs Bush

While most of us have had just about enough when it comes to discussing Health Care Reform, the discussions aren’t even close to being over.  The most anticipated provisions, the individual and employer mandates, are scheduled to take effect January 1, 2014. 

Many employers are focused on more of an internal analysis – evaluating whether they need to implement a group health plan or change the structure of their current benefit offerings to manage their exposure to penalties under the employer mandate provisions.  At the same time, it is critical to understand the options for individuals to receive subsidies and the availability of individual plans for purchase on state/federal insurance exchanges.  Along with the mandate provisions, insurance exchanges and individual subsidies also become available as of January 1, 2014.  As an employer, have you determined how many in your workforce might be eligible for subsidies in the event you didn’t offer insurance or in the event your group health plan offering is not “affordable” and of “minimum value?”  Not only should you be looking at this to be able to evaluate compensation and benefits offerings to employees, whether an individual is eligible for a subsidy can determine whether you have any penalty exposure for that particular individual.

Citizens and legal residents with household incomes between 100% and 400% of the federal poverty level (who purchase coverage through a health insurance exchange and do not have access to an “affordable” health plan of “minimum value” through their employer) are eligible to receive a monthly advance tax credit to reduce the cost of their coverage.  The amount a person can receive is based on the premium for the second lowest cost plan available on the exchange (i.e., a silver plan) and varies based on their income. 

For example, a household of 4 earning approximately $46,100 is at 200% of the federal poverty level.  This family would not have to pay more than 6.3% of their income ($2,904.30) if they decide to purchase coverage on the exchange at a benchmark level of silver or lower.  For the sake of example, if you assume the annual cost of family coverage in a silver plan is around $10,000, this family would receive monthly tax credits in advance totaling approximately $7,000 annually.  The amount they receive in subsidies is tied to the cost of the silver plan.  However, they are free to access the same amount of subsidy and use it to purchase the cheaper bronze plan. 

For those between 100% to 250% of the federal poverty level, they would also be eligible for subsidies to assist with out-of-pocket costs at the point of service, such as deductibles, copayments and coinsurance.  In the above example, if the family purchased a silver plan (which will have an actuarial value of 70%), they would receive additional subsidies to essentially improve the actuarial value of their coverage to 87%.

But remember, access to all of these subsidies for the family in the example above disappears where an employer offers “affordable coverage” at a “minimum value.”  Based on IRS clarification, an employer’s coverage is “affordable” and of “minimum value” if the cost of covering the employee only is no more than 9.5% of that employee’s income and the actuarial value of the plan is at least 60%.  The test for affordability is not based on the cost of family coverage in an employer’s health plan.

It is estimated that approximately 68% of the population is at or below 400% of the federal poverty level.  Have you evaluated how many employees in your workforce might be eligible to receive a subsidy and how your anticipated benefit offerings compare?  The Kaiser Family Foundation has published a subsidy calculator to use in examining the impact of the subsidy at different income levels, ages, family sizes, and regional costs.  It can be found here:  http://healthreform.kff.org/subsidycalculator.aspx