November 1 Tip of the Week

Unvaccinated Employees, Premium Surcharges, and ACA Affordability

In a recent tip of the week, we discussed the possibility of employers using premium surcharges for unvaccinated employees in connection with employer group health plans.  Charging a premium surcharge would raise an unvaccinated employee’s health insurance premium amount and serve as an incentive to become vaccinated against COVID-19.  New guidance from several federal agencies confirms that the use of premium surcharges is allowed.  However, the guidance also discusses how a premium surcharge could affect coverage affordability as related to the Affordable Care Act (“ACA”).

As a refresher on the ACA, an employer with 50 or more full-time or full-time equivalent employees in the previous year is covered by the law.  Covered employers must offer ACA-compliant group health insurance to eligible employees.  One requirement is that a covered employer’s offer of health insurance coverage to employees be “affordable.”  For 2021, affordable coverage means that an employee’s required contribution for the lowest cost, self-only coverage does not exceed 9.83% of their household income.  If coverage offered to employees is not affordable under ACA guidelines, ACA-covered employers could face steep IRS penalties.

When an employer uses a premium surcharge, that amount is added to the employee’s cost of the offered health insurance.  As a result, using a surcharge could push coverage that is normally considered affordable under the ACA outside of affordability limits.  ACA-covered employers thinking about using a premium surcharge for unvaccinated employees should work closely with their benefits provider, insurance broker, or insurance carrier to make sure their plan design meets ACA affordability requirements.     

Consult with the expert employment law attorneys at myHRcounsel for questions regarding vaccination, ACA compliance, and other issues facing employers.