More employers are contemplating a health plan premium surcharge for unvaccinated employees in lieu of incentives now that the FDA has approved a COVID-19 vaccine and the number of COVID-19 hospitalizations are on the rise. While this strategy has been more commonly associated with employees who smoke tobacco, employers are looking for new ways to keep the workplace safe and healthcare claim costs under control.
What is a Surcharge?
Most employers today have a set dollar amount or percentage of premiums that they pay for employee healthcare insurance. A common model is one in which an employer pays 80% – 90% percent of the premiums and requires the employee to pay the other 10% – 20%.
A surcharge is an additional fee or premium that an employee is required to pay on top of their regular portion or a percentage for healthcare coverage through their employer. For example, employee only medical coverage costs employees $150 per month. If the employer imposes a $100 surcharge for being a smoker, an employee who smokes would have to pay $250 per month for employee only medical coverage.
Cost of Hospitalizations
According to a report dated August 20, 2021, from the Kaiser Family Foundation (KFF), 98% of people hospitalized with COVID-19 between May 2021 and July 2021 were unvaccinated. Per the KFF report, the average hospitalization cost for COVID-19 is approximately $20,000 and 113,000 of the 185,000 hospitalizations during this time may have been prevented with vaccination. This resulted in $2.3B in healthcare spending that may have been avoided.
“Still, this ballpark figure is likely an understatement of the cost burden on the health system from treatment of COVID-19 among unvaccinated adults," researchers wrote, noting COVID-19 cases, hospitalizations and deaths have continued to increase in August and the analysis does not include the cost of outpatient treatment, which "is likely substantial.”
While the KFF report obtains its average hospitalization costs through data from the Centers for Medicare and Medicaid Services (CMS) ($24,033) and FAIR Health ($17,094 for people over age 70 and $24,012 for people in their 50’s), many employers are seeing much higher average costs for COVID-19 related hospitalizations; Delta Air Lines reports a $40,000 average claims cost per person.
- Given the cost of care detailed above, it is no surprise that employers are looking for ways to defray their healthcare claims costs. Employers who are considering implementing a health plan premium surcharge for unvaccinated employees need to consider many factors, such as:
- What will the surcharge amount be?
- Will the surcharge only apply to unvaccinated employees, or will a surcharge apply to unvaccinated dependents as well?
- When will the surcharge be implemented and how does that align with a return to the physical worksite?
- What time frame will you allow for those affected by the surcharge to get vaccinated?
- What will you require as proof of vaccination?
- Vaccination cards are considered medical information. If you require a copy of the vaccination card as proof of vaccination, are you prepared to comply with medical record security, privacy and retention requirements? Alternate options:
- Require proof of vaccination, but do not keep a copy of the vaccination card
- Require employees to sign a form attesting to their vaccination status
- How will you handle the submission of false information or a fake vaccination card?
- Will the surcharge eventually apply to booster shots or just initial vaccination?
Wellness Program Considerations
As with smoking surcharges, a surcharge for unvaccinated employees would be subject to the rules of the Affordable Care Act and HIPAA. These rules prohibit group health plans from charging similarly situated individuals different premiums or contributions, with the exception of certain wellness programs, according to the U.S. Department of Labor. Any surcharge would need to follow federal requirements for health-contingent wellness programs.
Further, employers must offer a "reasonable alternative standard" to a health-contingent wellness program, and this requirement can differ depending on whether the program is considered an "activity-only" or "outcome-based" wellness program under federal law.
Employers who implement a vaccine surcharge should keep in mind wellness program incentive limits and ACA affordability rules. Vita clients can reach out to their benefits account management team for guidance and further discussion.
Given the potential reduction in healthcare claims cost and improved workplace safety, most employers may believe surcharges are the answer. However, surcharges may be unlikely to significantly increase the vaccination rate of an employer’s population. Additionally, thought must be given to the effect such a surcharge would have on company culture.
Surcharges have no effect on the employee population who waived coverage. Typically, 10% - 15% of an employer’s population will waive off the health plan coverage. In addition, surcharges can disproportionately affect low-wage workers, which tend to be the largest unvaccinated population, according to U.S. Census data.
In the end, for some employers, a health plan premium surcharge may be too fraught with implementation, compliance and disparity concerns, thereby making vaccine mandates a more popular option, especially with the recent FDA approval of the Pfizer vaccine.