If you choose to smoke, your health insurance premiums will be higher. If you’re caught driving drunk, your car insurance payments will skyrocket. In other words, the greater the risks you take, the more you’ll pay.
But should employees who refuse to get vaccinated pay a penalty to cover their higher healthcare costs?
Companies like Delta say yes. On August 25, 2021, Delta CEO Ed Bastian announced that unvaccinated employees enrolled in the company’s healthcare plan would be required to pay a $200 monthly surcharge for healthcare.
The move, Bastian said, was to counter the average cost of the hospital stay for Delta employees infected with COVID-19: $50,000 per person. Noting that every Delta employee who had been hospitalized for COVID-19 hadn’t been vaccinated, Bastian explained that the healthcare surcharge “address[es] the financial risk [that] the decision to not vaccinate is creating for our company.”
Before the announcement, 74% of the company’s workforce had been vaccinated. In the last month, that number has risen to 78%, as 20% of the company’s 20,000 unvaccinated employees have chosen to receive the vaccine and avoid the fee. No employees have left the company because of the surcharge, according to Delta’s chief health officer, Dr. Henry Ting.
But is a surcharge right for your business? To help you decide, let’s first take a closer look at current healthcare costs in the wake of COVID-19. Then we’ll address why and how you may want to consider implementing a premium surcharge.
How much is COVID really costing employers?
COVID care has been incredibly costly for employers. For every million people who seek treatment for COVID-19, the U.S. healthcare system will incur $5.3 billion in costs, according to McKinsey & Company.
But, although COVID costs are extensive, the cost of employer healthcare insurance claims hasn’t increased—yet. That’s because as many as 40% of employees have deferred or canceled preventive care, forgoing checkups as well as treatments for chronic conditions.
Those ignored healthcare needs will result in a tsunami of costs when employees finally return to getting the care they need. And if those employees have serious conditions that have been untreated for too long, their costs will rise substantially—by as many as double digits, depending on the condition and span of time it was neglected.
When those deferred costs are combined with the behavioral and mental health conditions likely to arise from the isolation and stress of the pandemic, we’re entering into a perfect storm. On the low side, we anticipate that employer health care costs could rise by up to 8% this year.
The carrot or the stick: Which is more likely to convince unvaccinated workers to get the jab?
As vaccination rates have stalled out—they’re currently hovering around 54%—employers have been looking for new ways to encourage their unvaccinated workers to get a COVID-19 vaccination in an effort to lower healthcare expenses. The primary options fall into three camps: incentives, mandates, and penalties.
Some employers, particularly in retail and food service, are offering incentives, such as paid time off, gift cards, and raffle prizes, for those who decide to get vaccinated. Amazon offered its frontline workers $80 to get the vaccine and held a contest with prizes worth $2 million, including two $500,000 cash awards, new vehicles, and vacation packages.
At the other end of the spectrum are vaccine mandates. A recent survey by Reuters that polled 961 companies suggests that more than half of employers may have at least one vaccine mandate by year’s end.
The mandates vary in scope, with some employers requiring vaccination to remain employed and others requiring workers to be vaccinated to enter common areas. Nearly 14% of companies, including Google and McDonald’s, have mandated vaccines for all employees. But mandating vaccines raises political and legal issues, and mandates may not be enforceable. For example, the Governor of Texas, Greg Abbott, recently banned coronavirus vaccine mandates.
Still other companies are opting for premium surcharges as a middle ground, suggesting that this approach gives employees a choice and avoids the risk of worker shortages.
However, premium surcharges raise issues that employers should consider before they implement these measures.
What employers need to know before implementing a COVID-19 premium surcharge
Employers can’t penalize employees who refuse to be vaccinated with higher premiums under the Health Insurance Portability and Accountability Act (HIPAA). However, both HIPAA and the Affordable Care Act (ACA) permit employers to charge penalties as part of a “wellness” incentive program. As long as the programs are voluntary, they are permissible; employees who don’t want to pay a surcharge can choose instead to drop out of the company’s insurance plan. The idea is that employees will prefer a brief pain in their arm to a longer-term pain in their wallet.But there are other legal considerations for surcharge programs. The U.S. Equal Employment Opportunity Commission (EEOC) has suggested that, to be lawful, a reward or penalty for vaccination cannot be “so substantial as to be coercive.” So long as the penalty is 30% or lower (including any other incentives the company has in place), it should not run afoul of the EEOC’s recommendation. Employers must also ensure that they are accommodating employees who cannot get vaccinated because of a disability or a sincerely held religious belief.
You’ll also need to make sure that your healthcare surcharge does not violate the ACA’s definition of “affordable” health insurance coverage. This calculus will depend on several factors, including how much your health insurance costs, how many other wellness incentives you offer, how much you’re subsidizing health insurance, and how much you’re paying your employees.
Additionally, you must offer employees a “reasonable alternative” to the surcharge—and you must notify employees that this alternative exists. A reasonable alternative might involve watching a video on the dangers of remaining unvaccinated or undergoing regular COVID-19 testing.
If your workforce is unionized, you should review your collective bargaining agreement to determine whether it allows penalties such as surcharges. If it doesn’t, you may have to head to the bargaining table.
If your company spans multiple states, you should check your state and local laws to make sure they’ll permit a surcharge.
Finally, consider what you’ll accept as proof of vaccination. You’ll want to have a means in place to secure that information and a plan to address employees who present fake vaccine cards.
How to communicate a premium surcharge to your employees
Employers can take several steps to ensure that their announcement of a premium surcharge doesn’t cause a mass exodus or excessive backlash.
Create a timeline
The first consideration is deciding when to implement a surcharge. You’ll also need to decide how long to give employees to get vaccinated before you impose the surcharge. With open enrollment coming up for many employers, the timing of adding a surcharge can be tricky. If you wait to impose your plans beyond the window for open enrollment, the surcharge may be a significant enough change to health coverage that it allows employees to change their elections.
Be clear and direct
Your announcement should be simple, direct, and in plain language. Be transparent about why you’re implementing the surcharge and how COVID-19 vaccination is in the best interest of your employees and your company. As you communicate the why behind the surcharge, focus on the healthcare benefits to your employees, their family members, their co-workers, and their community.
Enable your managers
Be sure to give your managers talking points too. Your employees will likely turn to their immediate supervisor first with questions, so make sure they’re prepared so they can answer consistently with your policies. You may also find it beneficial to have an always-available question-and-answer portal that addresses employee concerns about their benefits.
How employers can move the needle on COVID-19 vaccination
There’s no clear answer for our nation’s vaccination dilemma. But you might be able to move the needle—literally and figuratively—for your employees by offering a carrot like a gift card or prodding them with a stick like a premium surcharge.
Regardless of which type of incentive you choose, you’ll need help communicating your plans. That’s where we come in. Because many of your employees will have questions that arise outside of working hours, it’s a good idea to provide an online benefits engagement platform like ALEX to offer answers and give reassurance to employees.