While the news cycle has been saturated with reporting on employers requiring that their employees either be vaccinated or be fired, most employers are looking to take a more delicate “carrots and sticks” approach.

To be sure, once the Equal Employment Opportunity Commission issues the rules that will govern President Joe Biden’s executive order requiring that employers with more than 100 employees mandate COVID-19 vaccination as a condition of employment (and assuming those rules are upheld by the courts), large employers may find themselves between a rock and the proverbial hard place.

Nonetheless, while guidance (and the inevitable court challenges are pending) employers of all sizes are exploring their options to encourage, rather than require, employees to get vaccinated and, even these softer approaches present compliance considerations employers would be wise to take into account.

Thankfully, on October 4, the Centers for Medicare & Medicaid Services , the Department of Health and Human Service and the Treasury Department released joint guidance providing answers to frequently asked questions regarding what is allowed (and disallowed) when considering health plan discounts or surcharges to health insurance rates depending on an employee’s vaccination status.

First of all, the guidance confirms that COVID-19 vaccination discounts or surcharges are governed by longstanding health-contingent wellness plan rules which limit the available discount or surcharge to 30% of the total cost of the employee-only health plan premium under the employer’s benefit plan.

Importantly, the guidance also clarifies that any vaccine related discount must be disregarded with respect to determining whether the premiums offered by the employer are “affordable” under the ACA. This means that when employers calibrate their employee contribution rates for 2022, they need to make sure that the premium being paid by non-vaccinated employees after any surcharge (or absent any incentive) is “affordable” (i.e., not more than 9.61% of their income).

Secondly, the FAQs confirm that employees must be given a chance to qualify for the vaccination incentive at least once each year and that a “reasonable alternative standard” must be made available to those “for whom it is unreasonably difficult due to a medical condition or medically inadvisable to obtain the COVID-19 vaccination in order to qualify for the full reward.”

According to the FAQs employers can require a doctor’s note confirming that a participant cannot or should not become vaccinated and can then require that non-vaccinated employees with such a medical exemption comply with CDC masking requirements as a means to satisfy the “reasonable alternative standard.”

The guidance further confirms that employers cannot condition eligibility to participate in a health plan on an employee’s vaccination status and, as a result, unvaccinated health plan participants cannot be denied benefits or access to coverage.

Certainly, once the EEOC releases its rules related to President Biden’s executive order, there will be momentary clarity followed by a flurry of confusion as legal challenges make their way to the Supreme Court; however, for employers looking to design an approach that leverages existing wellness plan rules to encourage employees to get vaccinated, last month’s regulatory guidance provides very helpful clarity that cuts through much of the prototypical COVID-19 confusion.

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