By - September 29, 2021

Why Giving COVID-19 Vaccine Incentives May Cause More ACA Headaches Than Benefits

covid 19 vaccine incentives

Every organization desires healthy employees. They take fewer sick days, are more productive, and cost less to insure with an employer-sponsored health plan.  A company may request their employees to receive annual health screenings or vaccinations, such as the flu shot. When employees and their covered family members do their part to remain healthy, the employer can realize those savings and keep healthcare costs lower.

Employers must be careful about what type of requirements they implement to ensure they are following the law. Delta Airlines made headlines in September by announcing they will charge employees enrolled on their group health plan a $200 surcharge for failure to receive the COVID-19 vaccination. This requirement conflicts with federal statutes including the ACA and other health regulations. Delta’s surcharge may be structured legally if done through a properly designed wellness program. This article was created to assist employers in identifying the Affordable Care Act (ACA) legal issues that need to be addressed when considering a similar incentive program.

Two types of ACA penalties

There are two types of ACA penalties applicable large employers need to be concerned about under Internal Revenue Code (IRC) section 4980H when making offers of coverage.  The first penalty, 4980(a), requires employers to offer affordable coverage to at least 95% of full-time employees and their dependents. The second penalty, 4980(b), requires the offer must meet the minimum value and be affordable based on three safe harbors: Federal Poverty Level, W-2 wages, or Rate of Pay.

Addressing COVID-19 surcharges through Wellness Programs

A wellness program that penalizes employees for not receiving COVID-19 vaccinations could cause affordability issues for an employer leading to section 4980H(b) penalties. A surcharge applied to the lowest plan cost offered could potentially make that plan unaffordable. Careful calculations must be conducted to ensure that plan costs after a surcharge are still affordable under ACA law. Additionally, the reported plan cost on Line 15 of the 1095-C must include the COVID-19 surcharge, which will add additional reporting burdens for employers.

Which incentives are legal?

If employees confirm they have been vaccinated on their own and not in response to an employer request, then guidance from the US Equal Employment Opportunity Commission may allow employers to offer an incentive, as long as the incentive is not “so substantial as to be coercive.”  Additionally, the incentive must not extend to the employee’s family members receiving a vaccination administered by the employer.

ACA headaches from COVID-19 incentives

However, this brings us back to the Affordable Care Act issues for those who are not offered benefits because they choose to remain unvaccinated.  Although 70% of adults in the U.S. have received at least one COVID-19 vaccine dose as of August 2021, the percentage of U.S. adults who say they oppose the vaccine has remained unchanged since December 2020.  According to a report from the Kaiser Family Foundation, 27% said they oppose the vaccine and 15% reported they “definitely would not” get vaccinated.  This means of your unvaccinated employees, 50% – 83% are likely to stay unvaccinated, no matter what incentives a company may provide.

If a company decides not to insure the unvaccinated, they enter a major risk of not meeting the 4980(a) requirement of offering benefits to at least 95% of full-time employees.  In addition, if a company penalizes an employee by increasing their premiums, then they risk not meeting the 4980(b) penalty for offering unaffordable coverage.

Advantages vs. disadvantages

Before deciding on adding a COVID-19 vaccine incentive, consider the pros and cons. Organizations want to keep health insurance costs down, but they also want to stay within the bounds of the law and keep employees happy. With the stress of the pandemic, employers are getting creative with how to educate employees about COVID-19 and promote vaccines—especially as they return to the workplace.

Tango Health experts have an extensive record of assisting and mitigating millions of dollars in IRS-related penalties for our clients.  Learn more about our full-service ACA solution or contact us and let us know how we can help.

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