Vaccine Incentives, Surcharges and Mandates, Oh My! 

Aug 19 2021

The recent surge in COVID cases nationwide have upped the stakes for employers in their efforts to return employees to the workplace and provide a safe working environment. To address the still significant risk related to unvaccinated status, employers are evaluating several options that range from a nudge to a push. Over 100 companies have instituted vaccine mandates. Others, like Amazon, are getting creative with incentives offering lotteries for large cash prizes and even cars. Here are some things employers should consider when evaluating COVID vaccine incentives, surcharges and mandates.

Vaccine Incentives

From an employee relations perspective vaccine incentives are perhaps the least controversial option. A segment of the US population remains hesitant to receive the COVID-19 vaccine. Certainly, for some employees who are “on the fence”, an incentive may be the nudge they need to make the effort to get vaccinated. Others, however, may feel their employer is coercing them into accepting the vaccine, especially if they are experiencing financial challenges and need the money that’s being offered. One in ten of our survey respondents say they offer employees cash or a gift card as an incentive to get vaccinated (little changed from 7% of respondents in our May survey); an additional 16% offer extra PTO as an incentive.

To administer a vaccine incentive the employer will either need to ask for an employee attestation, proof of vaccination or administer the vaccine. Asking employees to provide documentation or other confirmation of vaccination is generally permissible under the ADA, the Genetic Information Nondiscrimination Act, and Title VII, according to EEOC guidance. Proof of vaccination must be kept as a confidential medical record.

If the vaccine is administered by the employer or its agent, the incentive cannot be so substantial as to be coercive, and is not allowed for employees’ family members. Incentives in the form of cash, cash-equivalents (e.g., gift cards), and items and benefits that are more than de minimis, should be taxed as income. Incentives related to the group health plan trigger HIPAA wellness program rules.  Accommodation should be provided to those who are unable to receive the vaccine due to a disability or sincerely-held religious belief.     

Premium Surcharges

It’s not clear whether incentives will meaningfully improve uptake among those who are hesitant to receive the vaccine. While many employers are willing to take additional measures to increase vaccine levels, some continue to hold off on mandates because of potential employee relations issues the move might provoke. Seeking a middle ground, some employers are reviewing an alternative tactic – health coverage surcharges.

From a clinical perspective, those who are unvaccinated pose a greater risk of generating claims costs versus those who are vaccinated, and if by choice (i.e. not due to some health condition/disability or sincerely held religious belief), they are choosing to be higher risk just like a smoker does. Furthermore, the unvaccinated are significantly more likely than vaccinated employees to transmit disease. This poses a risk of lost time and additional claims cost across the entire working population. 

The topic of surcharges is new and we don’t have any real benchmarking or financial projections, and very few employers to date have implemented a surcharge based on vaccination status. To create financial projections would be speculation at best, but the biggest driver in ROI would be cost savings around the assumption that a surcharge would do what it’s supposed to do – convince people to get vaccinated.

From a compliance perspective, premium surcharges and other incentives tied to the medical plan trigger HIPAA wellness program rules. Employers considering surcharges should confirm the plan would still align with ACA affordability if employees forego the vaccine and have to pay a higher premium. EEOC wellness rules are triggered if the employer or its agent is administering the vaccine, as well as the prohibition on “coercive” incentives/surcharges noted above. As with incentives, accommodation should be provided to those who are unable to receive the vaccine due to a disability or sincerely-held religious belief, with an alternative offer to avoid the surcharge. State law restrictions related to vaccine status must also be considered.

Vaccine Mandates

Our latest survey shows companies are reconsidering vaccine mandates as the delta variant surges in the US. Of the 372 US employers responding, 14% require (or plan to require) all employees coming to their worksites to be vaccinated, with another 15% requiring vaccinations for certain job functions such as business travel or customer contact. Just three months ago, in a survey of 425 employers that closed in May, only 3% of respondents planned to require employees to be vaccinated and only 8% were even considering it.

The clinical data continues to reinforce CDC recommendations that the vaccines approved in the U.S. are overwhelmingly safe and effective. When the FDA likely grants full approval for the Pfizer vaccine, we expect an even greater uptick in mandates across both private and government sectors. A barrier to mandates in some quarters is the risk of employee turnover in a tight labor market. To the extent vaccine mandates are more broadly deployed, this may become less of an issue. There is some recent survey data that indicates those who are “on the fence” would take the plunge to get vaccinated if their employer mandated vaccination. We believe that mandates will drive vaccination rates but employers will need to weigh the potential benefits with the turnover risk, conflicts with culture and their own risk tolerance. Also keep in mind that some state laws may limit an employer’s ability to require COVID-19 vaccination.

Whether an incentive, surcharge or mandate is right for your organization will take careful consideration. But with the rapid spread of infections caused by the Delta variant we’re seeing more companies nudge and push employees to get vaccinated.

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