On October 4, 2021, the U.S. Departments of Labor (DOL), Health and Human Services (HHS), and the Treasury jointly released frequently asked questions (FAQs) clarifying the legal status of issues related to COVID-19 vaccine premium incentives, cost sharing for preventive services, coverage eligibility, and how vaccine discounts and surcharges impact employer mandate affordability.

This alert describes FAQs about Patient Protection and Affordable Care Act (ACA) Implementation Part 50, HIPAA, and Coronavirus Aid, Relief, and Economic Security (CARES) Act Implementation.¹

Use of health insurance incentives and surcharges to encourage vaccination

There has been much discussion among group health plan sponsors regarding various approaches to encourage covered participants to get vaccinated against COVID-19. One approach is a participant contribution differential (often described as either a surcharge or an incentive) between vaccinated and unvaccinated participants such that unvaccinated participants pay more toward their health benefits than their vaccinated counterparts.

The FAQs generally permit group health plan sponsors to impose surcharges on unvaccinated participants or to provide discounts to vaccinated participants, in an amount up to 30% of the total cost of the employee-only coverage.² The premium discount must comply with the five criteria outlined under Section (f)(3) of the HIPAA final wellness program requirements. HIPAA generally prohibits group health plans from charging similarly situated individuals different premiums based on a health factor, except when an individual has met the standards of a HIPAA-compliant wellness program.³ The FAQs classify a vaccine incentive program as an activity-only wellness program because it is contingent upon the individual completing an activity that is related to a health factor. The FAQs also provide an example of how a vaccine incentive program would comply with the five HIPAA criteria:

A group health plan offers a 25% premium discount off the cost of employee-only coverage to all participants who receive a COVID-19 vaccination. To help facilitate participants receiving the vaccination, the plan also maintains a toll-free hotline to answer questions and help schedule appointments. The plan provides the same premium discount to individuals for whom it is unreasonably difficult due to a medical condition or medically inadvisable to obtain a COVID-19 vaccination if the individual attests to complying with the CDC’s mask guidelines for unvaccinated individuals. The plan also provides notice of the availability of this alternative to all participants. Participants may qualify annually for this premium discount.

ACA affordability and COVID-19 vaccination discounts and surcharges

Under the ACA, employers with more than 50 full-time employees are required to offer affordable minimum value coverage to their full-time employees and their dependents. The FAQs confirm that wellness incentives that relate to the receipt of COVID-19 vaccinations are treated as not earned for purposes of determining whether employer-sponsored health coverage is affordable. Therefore, employers should not include COVID-19 vaccine discounts but should include surcharges when calculating plan affordability. The FAQs provide an example:

• If the individual premium contribution under a COVID-19 vaccination wellness program was reduced by 25%, this reduction is disregarded for purposes of determining whether the offer of that coverage is affordable for purposes of assessing liability for the employer shared responsibility payment.
• Conversely, if an individual’s premium contribution for health coverage under a COVID-19 vaccination wellness program is increased by a 25% surcharge for an unvaccinated individual, that surcharge would not be disregarded in assessing affordability.

Eligibility restrictions based on vaccination status

The FAQs state that plans and issuers may not discriminate in eligibility for benefits or coverage based on whether or not a participant, beneficiary, or enrollee obtains a COVID-19 vaccination. Benefits under the plan must be uniformly available to all similarly situated individuals and any restriction on benefits cannot be based on a health factor, including whether an individual obtains a COVID-19 vaccination. Furthermore, while there is an exception to the general prohibition on discrimination based on a health factor for wellness programs that meet federal standards, this exception is available only for premium discounts or rebates, or modifications of otherwise applicable cost-sharing mechanisms, and not for denying eligibility for benefits or coverage based on a health factor.

Rapid coverage of preventive services for COVID-19

The FAQs clarify Section 3023 of the CARES Act, which requires non-grandfathered group health plan sponsors to cover, without any participant cost sharing, any qualifying coronavirus preventive service within 15 business days. The FAQs state that group health plan sponsors must cover COVID-19 vaccines and their administration, without participant cost sharing, once the particular vaccine becomes authorized under an Emergency Use Authorization (EUA) or approved under a Biologics License Application (BLA), and according to the scope of the applicable EUA or BLA. This coverage must be provided consistent with the scope of the EUA or BLA for the particular vaccine, including any EUA or BLA amendment, such as to allow for the administration of an additional dose to certain individuals, administration of booster doses, or the expansion of the age demographic for whom the vaccine is authorized or approved.

Next steps for group health plan sponsors

The FAQs are effective immediately and will impact the vast majority of group health plan sponsors. Contact your Milliman consultant for guidance and to assist in planning any health coverage discounts or surcharges to incentivize vaccinations. We will continue to monitor and keep our clients apprised of any developments or additional legislation that is introduced.

¹ CMS (October 4, 2021). FAQs About Affordable Care Act Implementation Part 50, Health Insurance Portability and Accountability Act, and Coronavirus Aid, Relief, and Economic Security Act Implementation. Retrieved November 30, 2021, from https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/FAQs-Part-50.pdf.

² National Law Review (October 11, 2021). Incentivizing Vaccination: Federal Agencies Issue Guidance on Use of Health Insurance Discounts and Surcharges and the Impact on Employer Mandate Affordability. Retrieved November 30, 2021, from https://www.natlawreview.com/article/incentivizing-vaccination-federal-agencies-issue-guidance-use-health-insurance.

³ DOL. HIPAA and the Affordable Care Act Wellness Program Requirements. Retrieved November 30, 2021, from https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/publications/caghipaaandaca.pdf.

This update is intended to provide information and analysis of a general nature and should not be interpreted as legal or other professional advice. Milliman recommends that readers of this update be aided by their own qualified professional for guidance on their specific circumstances.