Vaccination Surcharges and Possible Vaccination Mandates – What Employers Need to Know Right Now

Insights | Vaccination Surcharges and Possible Vaccination Mandates – What Employers Need to Know Right Now

Author: Shelly Hodges-Konys, Director of Compliance

As you can imagine, Delta Airlines’ announcement of a vaccination surcharge and President Biden’s hint that mandatory vaccination rules may be forthcoming are generating a lot of questions. As such employers are evaluating the pros and cons of vaccination programs. Employment considerations are beyond the scope of this blog post, but the design of the vaccination program will ultimately determine what laws apply from a benefits industry perspective. Some decision points that impact the laws that apply include:

  • Will the incentive be tied to the group health plan or premium in any way?
  • Will vaccines be provided by the employer or an organization hired by the employer?
  • Will vaccination status simply be reported by the employee?

These decision points dictate the compliance considerations and laws that will apply to the incentive program.  The laws that may apply include HIPAA, ACA, ADA and others. Following is an overview of some of the considerations under each of these laws.

Health Insurance Portability and Accountability Act (HIPAA)

If the incentive provided by the employer is tied to the group health plan, the plan must comply with HIPAA nondiscrimination rules.  The HIPAA rules define wellness programs as either participatory or health-contingent activity-based or health-contingent outcomes-based.

  • Participatory programs do not require individuals to meet a health-related standard to receive the reward and incentives under participatory programs are unlimited.
  • Health-contingent programs require individuals to meet a health-related standard to receive the reward.

While there is some debate whether vaccination status is participatory or health-related, many attorneys are advising employers to treat a vaccination reward or surcharge as a health-contingent activity wellness program because vaccination may not be recommended for certain individuals due to underlying health concerns. 

The HIPAA rules require that a health-contingent activity-based program must: 

  • Be reasonably designed to promote health and prevent disease;
  • Be made available to all similarly situated individuals, which includes providing a reasonable alternative or waiver to any individual for whom it is medically inadvisable or unreasonably difficult to receive the vaccine; 
  • Provide an opportunity to qualify for the reward at least once per year; 
  • Limit any incentives under the terms of the wellness program to no more than 30% of the cost of coverage (based on single rate if only employees may participate or family rate if dependents may participate); and
  • Disclose the availability of a reasonable alternative standard for anyone for whom it is medically inadvisable to receive the vaccine

Any vaccination incentive must be combined with any other wellness incentive given for a participant meeting a health-contingent factor when determining if the 30% limit is satisfied (unless the other incentive relates solely to non-use of tobacco).  Additionally, employers may be required to provide religious accommodation under the terms of the wellness program for those individuals with closely held religious beliefs.

Affordable Care Act (ACA) Affordability

Another watch out for employers when incentives are tied to the group health plan is affordability under the ACA’s shared responsibility provisions (applicable to employers with 50 or more full-time equivalent employees). Employers must make an affordable offer of coverage or risk a penalty if an employee enrolls in marketplace coverage and receives assistance.  Offers of coverage are considered affordable if they are less than 9.83% of household income in 2021 (decreased to 9.61% for 2022). When calculating whether or not an offer of coverage is affordable (including under any of the three safe harbors), the employer must assume that all participants fail to meet the health standard (in this case vaccination) and must pay the higher premium. 

There is one exception with regard to tobacco use.  Employers may assume that employees are non-tobacco users when determining affordability.  In this case, employers may determine affordability based on the non-vaccinated (or non-wellness)/non-tobacco user rate.  

Americans with Disabilities Act (ADA)

The ADA applies to employer wellness programs when the program makes a disability-related inquiry or medical exam.  If the employer, or third-party on behalf of the employer, requests medical information as a screening before providing the vaccine, the plan must comply with the terms of the ADA and should consult employment counsel. 

For employers who intend to simply verify vaccination status, EEOC guidance indicates that vaccination status alone is not considered a disability-related inquiry. Therefore, vaccination status alone will not trigger an employer needing to comply with the EEOC wellness plan rules.

Complicating Factors

Beyond the direct compliance requirements posed under vaccination programs, there are also administrative challenges:

  • What is considered a reasonable accommodation under the ADA or a reasonable alternative standard under HIPAA for individuals who require an exemption from vaccination?
  • How will employers accommodate employees that have valid religious objections to receiving the vaccination?
  • What will employers accept as proof of vaccination? Vaccine cards are given to those that have received the vaccine; however, there are reports of fraudulent vaccine cards.
  • Employers that offer a one-time bonus or gift cards should remember that these incentives are taxable income. 


Employers have many issues to consider when it comes to offering incentives/penalties to encourage vaccination. This is a new dilemma employers are facing as they consider return to work plans and the safety and health of their employees. President Biden’s announcement that the Occupational Safety and Health Administration (OSHA) is working on guidance that may require certain employers to mandate vaccines could complicate the issue further. Time will tell and we need to wait and see whether and when OSHA issues guidance requiring mandatory vaccination. Employers should consider engaging legal counsel in the discussion and design of any vaccination program to have a clear understanding of compliance and potential risks from both an employment and benefits perspective. If you are considering an incentive/penalty, please reach out to your HORAN representative.

The information contained in this document is informational only and is not intended as, nor should it be construed as, legal or accounting advice. Neither HORAN nor its consultants provide legal, tax nor accounting advice of any kind. We make no legal representation, nor do we take legal responsibility of any kind regarding regulatory compliance. Please consult your counsel for a definitive interpretation of current statute and regulation and their impact on you and your organization.