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Premium Surcharges for Nonvaccinated Individuals

On Aug. 23, 2021, the Food and Drug Administration (FDA) gave full approval to the Pfizer-BioNTech COVID-19 vaccine (now marketed as Comirnaty) for individuals 16 years of age and older. As a result, many employers are exploring options related to COVID-19 vaccination status within their workforce, including whether to charge a premium surcharge for nonvaccinated individuals.

There are a number of legal considerations to take into account when determining whether to impose a premium surcharge (or offer an incentive) based on vaccination status. Subject to any specific state laws prohibiting this practice, employers may generally provide incentives to employees for receiving the COVID-19 vaccine (or penalize employees for failing to get vaccinated). However, this would likely need to be structured as a group health plan wellness program under existing law.

Download the full Compliance Advisor which provides an overview of the various compliance concerns for implementing a wellness program related to COVID-19 vaccination status.

Legal Background

There are several legal issues involved in designing workplace wellness programs. Wellness programs must be carefully structured to comply with both state and federal laws. The main federal laws that should be considered when designing a wellness program related to COVID-19 vaccination status are:

  • The Health Insurance Portability and Accountability Act (HIPAA);
  • The ADA;
  • The Affordable Care Act (ACA); and
  • Title VII of the Civil Rights Act of 1964 (Title VII).

These laws each have their own set of legal rules for acceptable wellness program design, which are not always consistent with one another.


HIPAA Nondiscrimination Rules

Under HIPAA, workplace wellness programs are divided into two categories: participatory wellness programs and health-contingent wellness programs. This distinction is important because participatory wellness programs are not subject to the same restrictions on incentives or rewards that apply to health-contingent wellness programs.

Note that federal agencies have not issued guidance addressing COVID-19 vaccination-related wellness programs, including which category this type of program would fall under.

Participatory wellness programs—Participatory wellness programs either do not require an individual to meet a health-related standard to obtain a reward or do not offer a reward at all. They also generally do not require an individual to complete a physical activity. Participatory wellness programs comply with the nondiscrimination requirements without having to satisfy any additional standards, as long as participation is made available to all similarly situated individuals, regardless of health status. There is no limit on financial incentives or rewards for participatory wellness programs.

Health-contingent wellness programs—Health-contingent wellness programs require individuals to satisfy a standard related to a health factor in order to obtain a reward. There are two types:

  • Activity-only wellness programs require an individual to perform or complete an activity related to a health factor to obtain a reward (for example, walking, diet or exercise programs). Activity-only wellness programs do not require an individual to attain or maintain a specific health outcome.
  • Outcome-based wellness programs require an individual to attain or maintain a certain health outcome to obtain a reward (for example, not smoking, attaining certain results on biometric screenings or meeting exercise targets).

To protect consumers from unfair practices, health-contingent wellness programs must follow certain standards related to nondiscrimination, including one that limits the maximum reward offered.

Nondiscrimination Standards for Health-Contingent Wellness Programs

Under HIPAA, group health plans and group health insurance issuers are prohibited from discriminating against individual participants and beneficiaries in eligibility, premiums or benefits based on a health factor. An exception to this rule allows benefits (including cost sharing), premiums or contributions to vary based on participation in a wellness program if the program complies with certain nondiscrimination standards.

A final rule issued by the Departments of Labor (DOL), Health and Human Services (HHS) and the Treasury (Departments) establish five nondiscrimination standards for health-contingent wellness programs.

  1. Frequency of opportunity to qualify: Eligible individuals must have an opportunity to qualify for the reward at least once per year.
  2. Size of reward: The total reward offered to an individual under an employer’s health-contingent wellness programs cannot exceed 30% of the total cost of employee-only coverage under the plan (50% for wellness programs designed to prevent or reduce tobacco use). Total cost includes both employer and employee contributions towards the cost of coverage.
  3. Reasonable design: Health-contingent wellness programs must be reasonably designed to promote health or prevent disease.
  4. Uniform availability and reasonable alternative standards: The full reward must be available to all similarly situated individuals. To meet this requirement, all health-contingent wellness programs must provide a reasonable alternative standard (or waiver of the otherwise applicable standard) in certain circumstances. Many of the uniform availability and reasonable alternative standard requirements apply differently depending on whether the program is an activity-only or an outcome-based wellness program.
  5. Notice of other means of qualifying for the reward: Plans and issuers must disclose the availability of a reasonable alternative standard to qualify for the reward (and, if applicable, the possibility of waiver of the otherwise applicable standard) in all plan materials describing the terms of a health-contingent wellness program.


Download the full Compliance Advisor to continue reading about:

  • ADA Requirements
    - Reasonable Accommodations
    - Medical Exams or Health Inquiries
  • ACA Requirements
  • Title VII Requirements
  • State Laws