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COVID-19 Vaccination Mandates vs. Surcharge
By Burnham Compliance

What does that mean for employers and your employees’ benefits?

In mid-August, the U.S. Food and Drug Administration (FDA) granted full approval for the Pfizer COVID-19 vaccine. This approval, along with the recent surge of the Delta variant, and the news of Delta Airlines surcharge decision, has led many companies to consider implementing vaccine mandates, offering incentives (such as gift cards, additional PTO and even pay raises), imposing surcharges or higher premiums on the unvaccinated, and other strategies to encourage employees to get vaccinated.

While we recommend each employer evaluate their specific circumstances and confer with legal counsel to avoid lawsuits and penalties, the following is a general overview of some areas of concern for consideration.

Equal Employment Opportunity Commission (EEOC) Guidance

Initial guidance on vaccination surcharges or incentives most closely follows how surcharges and incentives work as part of a wellness programs such as tobacco surcharges or smoking cessation programs. Under wellness programs, when employers require a surcharge or offer incentives, the EEOC applies the rule that any such surcharge/incentive cannot be “so substantial as to be coercive.” In addition, this amount would need to be combined with any other wellness incentives offered by the employer for purposes of evaluating the incentive limit.

For employees requesting a Religious Exemption, employers must make reasonable accommodations for an employee’s “sincerely held religious beliefs” as long as the accommodation does not impose an undue hardship on the employer. For example, an employer does not have to accommodate an employee’s religious beliefs if the accommodation is costly, infringes on other employees’ job rights or benefits, compromises workplace safety, decreases workplace efficiency, or requires other employees to do more than their share of potentially hazardous or burdensome work. Unfortunately, there is no clear understanding from the government as to what constitutes a “religious belief” and some states have different and/or more expansive laws for this particular exemption. Employers are strongly encouraged to check with their legal counsel for further clarification if an employee is requesting this exemption. HIPAA rules will also need to be considered in connection with any incentives or surcharges tied to vaccination status. The initial issue is whether the program is participatory only program or if it is a health-contingent program (and if the latter, whether the program is activity-only or outcomes-based). The answers to these questions are not always clear and again will depend upon the particulars of the subject program. These rules provide limitations on the amount of any surcharge or incentive and may also dictate the requirement to have a reasonable alternative for those who cannot be vaccinated for medical or religious reasons.

Health Insurance Portability and Accountability Act (HIPAA)

HIPAA also limits wellness program incentives to 30% of the total cost of medical plan coverage (50% for programs that include tobacco cessation incentives). The ADA requires an employer to maintain the confidentiality of employee medical information, such as documentation or other confirmation of COVID-19 vaccination. This ADA confidentiality requirement applies regardless of where the employee gets the vaccination.

Although the EEO laws themselves do not prevent employers from requiring employees to bring in documentation or other confirmation of vaccination, this information, like all medical information, must be kept confidential and stored separately from the employee’s personnel files under the ADA.

An employee who does not get vaccinated for COVID-19 because of a disability must let the employer know that he or she needs an exemption from the requirement or a change at work. This is known as a reasonable accommodation. To request an accommodation, an individual does not need to mention the ADA or use the phrase “reasonable accommodation.” Employers are advised to consider all the options before denying an accommodation request. Employers may rely on CDC recommendations when deciding whether an effective accommodation is available that would not pose an undue hardship to the company. Under the ADA, it is unlawful for an employer to disclose that an employee is receiving a reasonable accommodation or to retaliate against an employee for requesting an accommodation.

ACA Accountability

An Applicable Large Employer (ALE) must calculate the affordability of the plan based on an employee receiving the vaccination surcharge, which might cause an employer to unintentionally create an unaffordable plan to a large portion of its employee population.

Example: An employer implements a surcharge where employees who are vaccinated pay $100 a month for self-only coverage (which is affordable to all employees under the FPL safe harbor), whereas employees who are not vaccinated are charged $150 for self-only coverage. The employer must report the cost of the plan to employees as $150 on all employees’ Forms 1095-C, which could significantly impact the affordability of the plan to many of its employees.

Vaccination Concerns

While employers are generally allowed to offer vaccine surcharges and incentives, they are limited if the employer, or its agent, is administering the vaccine rather than relying on a third-party such as a pharmacy, employee’s doctor, or public clinic. According to the EEOC, the employer cannot offer an incentive or charge a premium surcharge that is so substantial as to be “coercive” if the employer or its agent is providing the vaccine to its employees. The EEOC has not given direction as to what the word “coercive” means other than to say employees should not “feel pressured to disclose protected medical information,” which is prohibited by the Americans with Disabilities Act (ADA). In addition, there would be a prohibition under the Genetic Information Nondiscrimination Act (GINA) against incentives with respect to employees’ family member receiving a vaccination at an employer’s clinic. It is strongly recommended that employers do not host onsite vaccination clinics but instead only offer incentives for employees who receive the vaccine from a third-party.

Final Recommendations

Implementing a vaccine surcharge or incentive program can be a complicated proposition with a plethora of laws to be considered, so it is very important that employers considering a mandatory vaccination policy establish clear procedures and guidelines to assure they are not violating an employee’s rights and have those policies and procedures reviewed by their legal counsel before implementing. However, Employers may want to avoid implementing a surcharge/incentive based on vaccination status at this time due to not having a clear safe harbor/bright line rule that could protect an employer from liability and unnecessary litigation. We also feel certain that the current Delta Airlines decision to implement a surcharge will be challenged in court which will provide some legal precedent in implementing such policies in the future.



For additional information, please contact your Burnham Benefits Consultant or Burnham Benefits at 949‐833‐2983 or inquiries@burnhambenefits.com.

Burnham Benefits does not engage in the practice of law and this publication should not be construed as the providing of legal advice or a legal opinion of any kind. The consulting advice we provide is intended solely to assist in assessing its compliance with the Patient Protection and Affordable Care Act and other applicable federal and state law requirements, and is based on Burnham Benefit’s interpretation of federal guidance in effect as of the date of this publication. To the best of our knowledge, the information provided herein, and assumptions relied on, are reasonable and accurate as of the date of this publication. Furthermore, to ensure compliance with IRS Circular 230, any tax advice contained in this publication is not intended to be used, and cannot be used, for purposes of (i) avoiding penalties imposed under the United States Internal Revenue Code or (ii) promoting, marketing or recommending to another person any tax-related matter.