Recently released FAQs confirm the view of the Departments of Labor, Treasury, and Health and Human Services (the "Departments") that employers can provide incentives under a group health plan (either in the form of premium discounts or surcharges) to encourage employees to receive COVID-19 vaccines. Such premium discounts or surcharges are permissible if offered through a wellness program as described under the Affordable Care Act ("ACA") final wellness program regulations. The FAQs confirm that vaccination status is considered an activity-based health contingent wellness program. As such, any vaccine incentives offered under a health plan must meet the following five-factor test that applies to all health contingent wellness programs:

  • the amount of the incentive, together with the reward for other health contingent wellness programs with respect to the plan, must not exceed 30% (or 50% for wellness programs designed to prevent or reduce tobacco use) of the total cost of employee-only coverage under the health plan;
  • the program must be reasonably designed to promote health or prevent disease;
  • participants must be offered a "reasonable alternative standard" (for example, compliance with the CDC masking guidelines) to qualify for the discount if it would be unreasonably difficult because of a medical condition or medically inadvisable to obtain the COVID-19 vaccination in order to qualify for the full reward; and
  • the plan must provide notice of the availability of the reasonable alternative standard; and
  • participants must be allowed to qualify for the incentive at least once per year.

The FAQs further clarify that employers may not discriminate in eligibility for benefits or coverage under a health plan based on whether an individual obtains a COVID-19 vaccination. In addition, the vaccine incentive program must comply with other applicable law, such as the EEOC standards regarding vaccine incentives under the Americans with Disabilities Act and the Genetic Information Nondiscrimination Act.

Vaccine incentives under wellness programs can also impact group health plan affordability under the ACA's employer shared responsibility payment ("ESRP") requirements. The FAQs remind employers that under prior IRS guidance, vaccine incentives that relate to the receipt of COVID-19 vaccinations are treated as "not earned" for purposes of determining whether employer-sponsored health coverage is affordable. Thus, for example, if the plan has a 25% reduction in premium for vaccinated participants, the discount is disregarded for purposes of determining whether the offer of that coverage is affordable (regardless of whether the participant is vaccinated). Conversely, if the plan has a 25% surcharge for non-vaccinated participants, the higher premium is used for all plan participants in measuring affordability. Offers of unaffordable coverage may expose an employer to an ESRP assessment if an employee opts out of employer-sponsored coverage that is not affordable, enrolls in the Health Marketplace, and qualifies for a premium subsidy. This problem is made more acute given that the affordability percentage for 2022 is lower than in 2021 (9.83% of household income vs. 9.61%) and it is easier for individuals to qualify for premium subsidies in the Health Marketplace in 2021 and 2022 under changes made by the American Rescue Plan Act.

Winston Takeaway: The impact of the ACA wellness rule requirements and the ESRP affordability rules on vaccine incentives may make premium incentives unattractive for some employers, particularly if they already have activity or outcomes-based wellness program incentives that must be aggregated for purposes of the 30% limit. Employers are also eagerly awaiting the OSHA Emergency Temporary Standard related to mandatory vaccination for large employers, which may also inform the approach taken to health plan premium incentives.

The FAQs also address coverage requirements under the CARES Act for COVID-19 vaccines and clarify that plans and issuers must now cover COVID-19 vaccines and their administration, without cost sharing, immediately once the particular vaccine becomes authorized under an Emergency Use Authorization (EUA) or approved under a Biologics License Application (BLA) and according to the scope of the applicable EUA or BLA, such as allowing for the administration of an additional dose to certain individuals, administration of booster doses, or the expansion of the age demographic for which the vaccine is authorized or approved. Given some confusion around the effective date of this requirement, the Departments have indicated that they will enforce this requirement prospectively only.  

Winston Takeaway: Employers who wish to add vaccine incentives to their health plan design should confirm that the incentive meets the requirements of the ACA wellness program rules and other applicable federal and state laws. In addition, employers should carefully assess how the amount of any premium discounts or surcharges will impact the 30% threshold under the final wellness program rules and affordability of the health coverage for purposes of the ESRP requirements. Plans should also be amended to comply with any COVID-19 vaccine requirements under the CARES Act and its implementing guidance. The FAQs can be found here.

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