September 17, 2021 Article

Health Coverage Incentives for Unvaccinated Employees

Employers wrestling with COVID-19 vaccination-reluctant employees have a lot on their plates. New federal mandates may require affirmative action but even without these new rules, the real problem is how to persuade your workers to get vaccinated. Some businesses will prefer a soft approach and offer monetary rewards. Others, especially firms with a large and diverse workforce, may wish to try something more forceful. While limiting group health plan coverage to those that are vaccinated or limiting health plan claims for COVID-19-related illnesses to only those that are vaccinated will violate HIPAA non-discrimination rules, Delta Airlines recently announced a $200 health coverage surcharge for all employees who refuse vaccination. So, the obvious question is: Can I offer a reward or assess a penalty to encourage vaccination?

The short answer is: Yes, if you are prepared to work your way through a complicated set of rules. Here is a summary of some of the hurdles you will face. Needless to say, don't try this by yourself. Get professional help before you take the leap.


The Health Insurance Portability and Accountability Act of 1996 says, among many other things, that group health plans and insurers cannot use health-related factors to discriminate among similarly situated covered individuals. This bars the use of different premiums for the same coverage if the difference has to do with a health factor. Vaccination status is considered a health-related factor.

Wellness Programs

This is an exception to the HIPAA rule stated above. Employers can offer incentives or impose penalties on covered employees if they create a wellness program and follow some fairly tight requirements. There are two types of wellness programs:

  • Participatory: None of the conditions for obtaining the reward are based on the individual satisfying a standard relating to a health factor. This is where you can reimburse the cost of a gym membership.
  • Health-contingent: The individual is required to satisfy a standard related to a health factor in order to obtain the reward. There are two types of health contingent programs:
  1. Activity-only: While they must complete an activity related to a health factor in order to obtain the reward, participating individuals are not required to attain or maintain a specific health outcome (for example, the employee only has to walk X number of steps per day).
  2. Outcome-based: A participating individual must attain or maintain a specific health outcome (for example, participate in a program aimed at quitting tobacco and actually quitting).

Vaccination Status

An employer adopting a wellness program that offers a reward or assesses a penalty based on vaccination status is a health-contingent, activity-only wellness program. It is not participatory since the reward or penalty is conditioned upon the individual actually getting the vaccine. It is not outcome based because the individual is not required to attain or maintain a specific health outcome (not get COVID-19).

Size of Reward

The reward or penalty for getting vaccinated cannot exceed 30% of both the employer's and employee's contributions toward the cost of coverage. So, if the total cost of health coverage for an employee is $6,000 per year, of which the employee pays $2,000 and the employer pays $4,000, the total reward or penalty is capped at $1,800 (30% x $6,000 = $1,800). This limit applies to all wellness programs on offer so the specific amount will have to take this into account.

ADA Compliance

Employers that create a wellness program aimed at encouraging COVID-19 vaccinations must also comply with the Americans with Disabilities Act of 1990 ("ADA"). The ADA prohibits both discrimination based on disability and disability-related medical examinations and inquiries unless the medical examination or inquiry is "job-related and consistent with business necessity" or is a voluntary medical examination that is part of an employee health program. The Equal Employment Opportunity Commission ("EEOC") says that an employer incentive to voluntarily provide documentation or other confirmation of vaccination is "not a disability-related inquiry covered by the ADA."

GINA Compliance

The Genetic Information Nondiscrimination Act of 2008 ("GINA") may also come into play if the employer or agent is responsible for administering COVID-19 vaccinations and the incentive or penalty is based on a family vaccination status. According to the EEOC, there are no GINA compliance issues when an employer offers an employee an incentive to receive a COVID-19 vaccination, regardless of whether the vaccination is administered by an independent third party of the employer or the employer's agent, because the employer is only requesting proof of vaccination and is not requesting genetic information. However, if the employer or the employer's agent is administering the vaccine, GINA prevents the employer from offering an incentive to its employee on the basis of the vaccination status of an employee's family member. However, if the COVID-19 vaccine is administered by an independent third party, with the employer merely requesting proof of vaccination, no GINA issues arise.

Other Considerations

  • ACA Implications of Surcharge. A surcharge will increase the cost of coverage for employees who pay the penalty. This may affect large employers who must, under the Affordable Care Act and Section 4980H of the Internal Revenue Code, offer affordable minimum essential coverage to their full-time employees. 
  • Reasonable Design. Wellness programs must be "reasonably designed" to promote health or prevent disease. This means the program must have a "reasonable chance of improving the health of, or preventing disease in, participating individuals, and it is not overly burdensome, is not a subterfuge for discriminating based on a health factor, and is not highly suspect in the method chosen to promote health or prevent disease."
  • Uniform Availability and Reasonable Alternative Standards. Since the full reward must be available to all similarly situated individuals, the program must include a reasonable alternative standard, or waiver of the standard, for any individual unable to achieve the standard due to a medical condition or for whom it is "medically inadvisable" to attempt to achieve the standard. This means waiving the requirement for individuals with a valid medical reason for bypassing the COVID-19 vaccine. 
  • Vaccinations and Alternatives. Careful consideration must be given to describing what it means to be vaccinated for purposed of receiving the award or avoiding the penalty. For example, is a single dose sufficient? Which vaccines are acceptable? Is a booster required? When? The same applies to defining alternative ways to meet the requirements. Will tests be required? How often? Who will administer them?
  • Title VII. Some employees may have religious reasons not to get vaccinated. Failure to provide them with a way to access the incentives or avoid the penalty could lead to claims under Title VII.
  • State Laws. Do state laws prevent, or otherwise limit, such a program?
  • Confidentiality. This needs to be a priority since the information collected must be protected.
  • Plan Administration. The plan document must describe the wellness program, including the availability or waiver of the standard or a reasonable alternative to qualify for the reward. Eligible individuals must be given an opportunity at least once each year to access the reward or avoid the penalty. Of course, the plan administrator will also have to actively monitor vaccination status, waivers, reasonable alternatives, and other wellness program requirements.

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