Employers' premium surcharges for unvaccinated employees could result in ACA penalties

Employers nationwide are considering vaccine incentives and potential penalties for workers who remain unvaccinated against COVID-19. Recent news coverage indicates that many employers across the country are considering levying premium surcharges for employees who participate in their company’s health care plan and choose to remain unvaccinated. There are many factors under consideration with these kinds of decisions, but there is a potential compliance and fiscal wrinkle that may not always be on radar – the Affordable Care Act (ACA) ramifications related to how those surcharges, or penalties, affect the affordability of an employer’s health plans.

The Affordable Care Act (ACA) requires Applicable Large Employers (ALEs) to offer affordable health care benefits to eligible employees or pay a penalty. Within the ACA law lie very specific rules governing the design of wellness programs, especially regarding incentives and penalties (premium surcharges).

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Here’s how surcharges applied to health plan premiums may be impacted by ACA requirements:

• Under the ACA, the employee premium cost for your lowest-cost plan that meets minimum value must meet affordability guidelines.
• In 2021, affordability is achieved when an employee’s cost for health insurance benefits is no more than 9.83% of that employee’s household income. This percent is adjusted each year and safe harbors apply.
• Under current ACA guidelines, a premium surcharge for choosing to be unvaccinated against COVID-19 could be applied to the cost of your organization’s lowest-cost health plan.
• If the cost including the surcharge renders the plan as unaffordable, and the employee goes to the exchange and receives a premium tax credit, the employer may be subject to Penalty B. The $4,060 penalty per year can be multiplied by the total number of full-time employees who did not have an offer of affordable coverage and who also receive a premium tax credit.

Employers may be familiar with or have a tobacco surcharge – a common penalty leveraged by employers to help mitigate health care costs resulting from tobacco use – which is a big exception to the above rules. Typically, smokers face health plan premium surcharges if they fail to quit using tobacco products and if they fail to comply with reasonable alternatives, such as completing a tobacco cessation program. Under the ACA, if the employee has cost-free tobacco cessation services, the surcharge is not applied in the affordability calculation.

While there is an exception for tobacco, there’s nothing currently in the ACA rules that similarly applies to a surcharge or penalty for non-COVID-19 vaccinated employees. That could change, but for now if employers implement a significant premium penalty (e.g., a $100 surcharge) applied to employee health plans they might unwittingly cause their plan to become unaffordable under the ACA, which might push unvaccinated employees out of the employer-provided plan and cause them to seek coverage on the exchange. When this happens, the employer is at potential risk for unexpected and possibly costly penalties.

The final word is: Employers who are considering implementation of a health care premium surcharge on COVID-19 unvaccinated employees should tap into the expertise available to them, including legal, human resources, brokers, benefit consultants or ACA solution providers to help ensure the approach is aligned with current ACA rules and regulations.

Kyle Scott is assistant vice president of compliance at Health e(fx), an Equifax company. She earned her Juris Doctor, Cum Laude, from Hamline University School of Law and her BA in Psychology from Purdue University. Kyle is Certified in Healthcare Compliance (CHC), and achieved certificates in Management Information Systems, Health Law, Human Resources Compliance, and Cybersecurity and Privacy Law.