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Life Health > Health Insurance

Insurance Surcharges Could Boost Vaccination, but Watch Out

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What You Need to Know

  • Many surcharge proposals mirror tobacco-related health premium surcharges that have been legally imposed on tobacco users for decades.
  • If your small-business client is considering imposing a vaccine-related surcharge, it's important to understand the rules.
  • Employers must make reasonable accommodations for employees who decline vaccination because of a disability or religious belief.

In a post-vaccine world, many employers are starting to think outside the box when it comes to encouraging employees to receive the COVID-19 vaccine. It’s no secret that vaccination rates have stalled this summer — even as further incentives for vaccination become available and the delta variant has created a surge in infection rates nationwide.

Many employers are considering imposing a surcharge on unvaccinated employees who participate in employer-sponsored health insurance programs. The details of the surcharge proposals vary widely, although many mirror tobacco-related health premium surcharges that have been legally imposed on tobacco users for decades.

If your small-business client is considering imposing a vaccine-related surcharge, however, it’s important to understand the now-muddy rules and regulations surrounding these types of wellness programs before taking action.

Details of the COVID-19 Vaccine Surcharges

Countless employers have offered incentives to encourage vaccination even while many stopped short of requiring employees to receive the vaccine. Those incentives have included gift cards and paid time off work, but they haven’t provided the results some employers expected.

As a result, employers have begun to consider or implement surcharge programs to encourage vaccination in the workplace. Those surcharges might equal between $20 and $50 a month — amounts that are similar to the surcharges imposed on smokers who receive employer-sponsored health insurance benefits. 

The surcharges, while designed to encourage vaccination, would also address problems the employer might face should the worker become infected with COVID-19. Unvaccinated employees are more likely to contract COVID-19 — increasing the odds that they could require hospitalization and costly medical treatment, as well as time away from work.

Those increased health care costs could raise the employer’s overall cost of providing group health insurance coverage and, therefore, increase all employees’ eventual health insurance contribution requirements.

Employers considering the surcharge for unvaccinated workers are largely also hesitant to mandate vaccinations across the board because of the substantial controversy the move might generate. The surcharge alternative would allow employees to make the choice about whether to receive the vaccine or not — but also require those employees to consider the cost of the decision to remain unvaccinated.

Uncertainty in EEOC Wellness Program Regulations

Employers that elect to impose a vaccine surcharge should understand the EEOC rules that apply to wellness programs designed by employers to offer health-related incentives to employees. While wellness programs can provide motivation to keep employees healthy and reduce the overall cost of health care, they can also be construed as coercing employees into making health-related decisions if the incentives involved are particularly strong. 

Unfortunately, the EEOC elected to withdraw a new set of regulations in February 2021 that could have provided added clarity for employers. 

Under the new regulations, employers would have been permitted to offer de minimis incentives to employees in exchange for participation in wellness programs (including vaccine-related programs). Those incentives could include things such as water bottles, low-value gift cards and other small gifts. However, employers that also offered a health insurance plan in conjunction with the wellness program would have been permitted to offer incentives valued at up to 30% of the cost of coverage. 

Today, employers should consider a range of issues when implementing a surcharge or incentive program. Employers should ensure that the surcharge is not substantial enough to be viewed as coercive — and must also consider reasonable accommodations for employees who are unable to receive a vaccine because of a disability or a religious belief.

In addition to EEOC rules, employers will also have to ensure that the surcharge is compliant with HIPAA and ACA rules on wellness programs. That means the client should consider how the employee will provide proof of vaccination and how that information will be kept private. Employers may also wish to consider the consequences if it’s discovered that the employee offered a forged or fake vaccine card as proof of vaccination.

Importantly, under current EEOC guidance, employers can offer incentives to employees who provide proof that they’ve been vaccinated on their own. While incentives and surcharges are not precisely the same, the same logic should apply.


In the end, it’s likely that more employers will simply begin to require vaccination now that the vaccine has received full FDA approval. Until then, employers relying on incentives and surcharges should pay close attention to emerging EEOC and other agency guidance on the issue.


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