Employers seeking to increase the Covid vaccination rate of their employees may have seen press coverage and commentary on health insurance premium surcharges for those who are not vaccinated. While at a high level this approach may seem appealing, vaccine surcharges will create substantial administrative complexity for group health plan sponsors and will not likely substantially increase vaccination rates. We spell out the challenges of vaccine surcharges and offer more effective approaches that also require less administrative lift.
Our case against implementing a premium surcharge on unvaccinated plan participants is based on the following:
1. Vaccine surcharges are ineffective at gaining employee attention.
Behavioral economics tells us that changes in the following year’s health insurance premium are not effective at influencing employee behavior. The surcharge is communicated during annual enrollment but actually kicks in months later, diminishing attention due to our “present bias.” A surcharge will also get less employee attention because it is a relatively change in an employee’s total paycheck which is spread out over the entire year.
2. Vaccine surcharges create additional compliance burdens.
Vaccine surcharges can only be implemented through wellness incentives, which are regulated by the Health Insurance Portability and Accountability Act (HIPAA) and the Affordable Care Act (ACA). Some employers might already have incentives worth close to the maximum allowed, and adding a new surcharge may require eliminating existing wellness incentives.
A vaccination surcharge also requires a “reasonable alternative standard” (RAS) be offered for those who are not vaccinated to avoid the surcharge. The most clinically effective alternative would be biweekly or weekly testing. However, the employer does not know in advance whether an employee will complete such testing, so it’s difficult to determine if the surcharge should be imposed or will need to be waived. Some employers have considered an educational session as a RAS, but this would not help improve the safety of the workplace.
Employers must communicate changes in wellness incentive programs in time for employees to meet the requirement to avoid the surcharge, and employees would need their first dose of an mRNA vaccine 5-6 weeks before open enrollment to be fully vaccinated. For employers with a January plan year, the deadline to plan and deliver this communication is likely imminent or may have already passed.
3. Administration of the vaccine surcharge is complex.
Benefit administrators would need complete and accurate files to determine who would be subject to the surcharge sufficiently before the beginning of the plan year. Any new wellness program or change to an existing program will require plan changes and coordination with a wellness vendor and the plan’s administrator. There is substantial execution risk of adding these requirements late in the planning cycle.
4. Vaccine surcharges are likely to be disproportionately imposed on low-wage workers.
High vaccination rates are strongly correlated with education and income. Therefore, surcharges for the unvaccinated would mean a lower health care subsidy for low-wage workers, who are already at greatest risk of financial insecurity due to health care costs. Furthermore, the surcharge would need to be added to the premium for affordability calculations under the Affordable Care Act’s employer mandate, which could subject some employers to penalties.
5. Determination of who should be subject to vaccine surcharges raises many difficult-to-answer questions.
Companies would have to decide whether to use employee attestation, upload of CDC card or other documentation, or queries of state databases which might have incomplete or inaccurate data. They would need to properly protect that data once collected. They would have to decide whether those with family plans would have to have all eligible family members vaccinated. Some employees have received vaccines not yet approved in the US. While they are clinically protected from Covid, they may be subject to a poorly-designed surcharge. Erroneously imposing surcharges would cause substantial employee dissatisfaction.
6. Vaccine surcharges could create challenges in subsequent years.
Employers would have to decide when or if the surcharge would sunset when the pandemic is over. They would also have to decide whether to include recommended booster shots in the scope of the surcharge, and these might be recommended at different intervals for different employees.
One alternative to the surcharge is a vaccine mandate, which is likely to lead to high rates of employee vaccination. Vaccine mandates have been implemented by the federal government, states including California and New York, as well as many hospitals and universities. Mandates have also been announced recently by some large companies. But many employers are reluctant to mandate vaccines. Some are concerned that the current vaccines are not yet fully authorized by the Food and Drug Administration and might be more willing to move to mandates after that approval is granted. This approval is expected in the coming weeks. Some are worried that a vaccine mandate could lead to worker shortages or are nervous that mandating vaccines will anger some employees. A recent poll showed that a majority of employees favor vaccine mandates to improve workplace safety.
In addition to mandating vaccination, employers can require frequent testing of those who are unvaccinated, to decrease the chance of workplace transmission. They can also restrict access to higher risk areas of the workplace like cafeterias and gyms. Employers can also have more restrictive mask requirements for the unvaccinated, although the Centers for Disease Control and Prevention (CDC) currently recommends indoor masks for both the vaccinated and the unvaccinated in counties with substantial or high rates of transmission, which as of late August includes most of the country.
Some employers, nonetheless, will wish to pursue vaccine surcharges. These employers can improve their outcomes by copious and early communication, keeping the rules as simple as possible (for instance not requiring booster shots and using attestation rather than verification), and designing a reasonable alternative standard that will improve workplace safety, such as commitment to frequent testing. They can also proactively discuss implementation with both their wellness vendor and their benefit administrator.
Unvaccinated employees are at much higher risk of hospitalization and death due to Covid-19, and they are more likely to expose others at the workplace. We have reached a point in the pandemic where employers should not only make it easy for employees to get the Covid vaccination, but they should consider making it more difficult for employees to remain unvaccinated. We believe that frequent testing, workplace restrictions on the unvaccinated, and vaccination mandates will likely be more effective than premium surcharges in diminishing the risk of spread of Covid in the workplace and in increasing vaccination rate among employees.
Table: Pros and Cons of Surcharge for the Unvaccinated
| Pros | Cons |
| Sends clear signal that the employer supports vaccination | Not likely to drive a large increase in vaccination; the incentive will get less employee attention because the surcharge happens months after the desired activity, and is a small component of the larger paycheck |
| Might make vaccinated employees feel more secure | Would need to invest administrative resources and perhaps incur additional cost from external benefits and payroll administrators |
| Many employers already have a wellness program with the administrative process for premium reductions or surcharges | Would require other changes to existing wellness program |
| High risk of administrative errors, and high volume of employee questions, especially if this is decided late in the open enrollment planning cycle | |
| Could disproportionately impact low wage workers | |
| The most effective “reasonable alternative standard” may be difficult to administer | |
| Other available alternatives can increase employee vaccination rate with less administrative burden |
