The following article was first posted on Carmody Torrance Sandak & Hennessy LLP's Labor and Employment Law blog and is reposted here with permission.


Premium discounts and surcharges on employee contributions to employer-sponsored health plans based on COVID-19 vaccination status have become a hot topic.

On Oct. 4, 2021, the federal departments of Labor, Health and Human Services, and Treasury issued FAQs regarding the application of the HIPAA wellness program rules to vaccine-related premium surcharges and discounts.

HIPAA prohibits group health plans from discriminating against participants with respect to eligibility, premiums, or contributions based on any “health factor."

However, the HIPAA rules specifically allow employers to provide premium discounts, rebates, or modification of cost-sharing requirements for wellness programs that meet certain requirements.

Key Takeaways

Wellness Program. The FAQs clarify that vaccine premium surcharge or discount programs are “activity-only” wellness programs that must comply with the five criteria for activity-only programs.

Among these requirements, the reward or surcharge must not exceed 30% of the total cost of employee-only coverage.

The program must also provide a reasonable alternative to qualify and notice of its availability to employees.

Based on the example provided in the FAQs, an acceptable alternative to vaccination is to allow individuals to qualify if they attest to complying with the CDC’s mask guidelines for unvaccinated individuals because it is unreasonably difficult due to a medical condition or medically inadvisable to obtain a COVID-19 vaccination.

The FAQs also note that the alternative standard is not overly burdensome and is designed to prevent infection with COVID-19.

In addition, the plan in the example maintains a toll-free hotline to provide information about the vaccine, assist in scheduling vaccine appointments and/or fulfilling the reasonable alternative standard (which demonstrates that the program is designed to promote health or prevent disease by ensuring that the program is not overly burdensome).

Other Laws. Although compliance with the HIPAA guidance is important, the guidance reminds us that such compliance is not determinative of compliance with any other state or federal law, including the Americans with Disabilities Act. 

For example, compliance with the HIPAA wellness program rules does not relieve an employer from the ADA’s limits on conducting medical examinations or making disability-related inquiries to employees in connection with a wellness program (previously covered here).

Limitation on Eligibility or Coverage Not Permitted. Finally, the FAQs clarify that plans may not discriminate when it comes to eligibility for benefits or coverage based on whether an individual obtains a COVID-19 vaccination.

There is no wellness plan exception for eligibility or coverage based on a health factor.

Affordable Care Act Issues

Note that for purposes of determining affordability of coverage under the ACA, employers must assume that no one qualified for the premium discount or that everyone was surcharged.

Thus, if the employer’s lowest cost coverage was just meeting the ACA standards for affordability, a wellness program could negatively impact this ACA requirement.


About the authors: Mark Williams is an attorney who specializes in all aspects of employee benefits with Carmody Torrance Sandak & Hennessy LLP. Timothy Klimpl is an attorney with experience providing ERISA advice. Romania Jawahir is a non-lawyer member of the firm’s labor and employment practice, pursuing an MBA with a concentration in human resources management.

This information is for educational purposes only to provide general information and a general understanding of the law. It does not constitute legal advice and does not establish any attorney-client relationship.