HR Policy Association

Three Agencies Say Vaccine Incentives are Legal, Big Restrictions Still Apply

Published on: October 8, 2021

Authors: Gregory Hoff

Topics: COVID-19 Employer Issues, Employee Relations

In guidance issued by the Departments of Labor, Treasury, and Health and Human Services, the Biden administration clarified that employers can legally offer health care premium discounts or surcharges tied to COVID-19 vaccination.  However, significant strings are still attached to offering such incentives, perhaps conflicting with the administration’s goal of vaccinating as many individuals as possible.

The guidance clarifies that COVID-19 vaccination discounts and/or surcharges cannot exceed 30% of the cost of employee-only coverage.  That is, the discounts and surcharges fall under "activity-based, health-contingent" wellness plan rules.  Thus, they cannot be as substantial as those affiliated with smoking cessation plans.  Further, such discounts and/or surcharges are treated as “not earned” for the purpose of determining whether employer coverage is affordable under the Affordable Care Act.  Instead, they are counted as part of the required contribution in determining affordability under the ACA. 

Other key requirements for employers include:

  • Employers must provide a reasonable alternative to obtain the reward or avoid the penalty for individuals for whom it is unreasonably difficult due to a medical condition or medically inadvisable to be vaccinated (e.g., allowing unvaccinated individuals to attest they will follow CDC masking guidelines);
  • Any policy or program must be designed to reasonably promote participant health or prevent disease (e.g., the employer provides a toll-free hotline to answer vaccine questions and provide assistance with scheduling appointments); and
  • The policy or program must be available to all similarly situated health plan participants. 

Some large employers such as Delta Airlines have rolled out health premium surcharges for unvaccinated employees, with many other employers exploring similar options as a way to increase workforce vaccination rates.  The guidance issued by DOL, HHS, and Treasury gives employers a green light for such policies.

However, the agencies declined to give special treatment to using healthcare premiums or surcharges as incentives to get the COVID-19 vaccine, and instead clarified that they are subject to the normal wellness and incentive program rules and restrictions applying to all health-contingent programs. The administration could have, for example, followed the exceptions associated with tobacco cessation programs, which allows for a higher incentive limit (50% as opposed to 30%) or created a different carve-out for COVID-19 vaccine incentives.  Despite a consistently stated goal of getting as many individuals vaccinated as possible, the administration declined to offer similar exceptions for vaccine incentives.

New guidance issued for vaccine mandates for federal employees:  The Safer Federal Workforce Taskforce issued new Q&As regarding the vaccine mandate for federal employees, focusing on documentation, handling exemptions and exceptions, and limited circumstances where delayed implementation is allowable.  While at present these only apply to federal employees, and not federal contractors or federal contractor employees, the same or similar Q&As may eventually be issued for contractors and their employees. 

Meanwhile, state and city vaccine mandates are being challenged in court, offering a potential preview of similar challenges to the forthcoming federal mandates.  A group of construction associations in Colorado is challenging a Denver City order compelling builders hired for municipal projects to enforce the city’s vaccine mandate.  Their complaint alleges that Denver is attempting to “conscript the private sector to be its enforcement agent” in violation of the employers' constitutional rights, and notes that compliance would leave builders short-staffed to the point of being unable to complete projects.  Depending on the outcome, this case could serve as a template for eventual challenges to the Biden administration’s forthcoming Emergency Temporary Standard instituting vaccine mandates for large employers. 

Gregory Hoff

Associate Counsel, HR Policy Association

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