Employers: Tie Health Insurance Rates to Vaccination Status?

(Bloomberg Opinion) –With the highly transmissible delta variant spreading rapidly in the U.S. and COVID-19 vaccine uptake in some areas still disappointingly low, it makes sense to push every lever available to get people protected. One underused tool is the cost of health coverage.

Health insurance is a significant expense for many Americans and could create powerful financial motivation for holdouts to get shots. Using it isn’t just the right thing to do for public health as cases surge. Higher vaccination rates can also save money for health plans by reducing avoidable and expensive COVID cases. Further, extra costs don’t just fall on the unvaccinated, but on their employers, colleagues via potential monthly premium increases, or other taxpayers.

As always with vaccine incentives, the question is whether to use a carrot with discounts or a stick such as a premium hike. In this case, the carrot is a safer option, with fewer unintended consequences.

Here’s how it could work. The Affordable Care Act and the Health Insurance Portability and Accountability Act typically prohibit adjusting individual insurance costs for anything but a few limited factors including age, geography, tobacco use and family size. But there is an exception for employers, who provide insurance for nearly half of the population. They can modify premiums to offer potentially tax-free incentives worth as much as 30% of the cost of coverage as part of workplace wellness programs. You may have encountered these via efforts like annual health screening questions or step count contests. Government guidance released in May suggests that as long as providing proof of vaccination is voluntary and the employer itself isn’t giving the shots, significant incentives for jabs are fair game.

According to the Kaiser Family Foundation, the average premium for employer-sponsored single coverage was $7,470 in 2020. Of course, employers aren’t about to offer a thousand-plus dollars to newly vaccinated people. But the offer of even a few hundred dollars in coverage savings or as a one-time rebate would be a meaningful incentive to get a shot, especially in combination with other cash awards that some states and cities are offering. Most employer incentives have been small, though Walmart Inc. just doubled a cash incentive for employees who get vaccinated to $150. Health insurer Cigna Inc., which knows COVID and health behavior better than most, went bolder from the start with a $200 award starting in April for fully vaccinated employees on its health plan.

But why not hike premiums for people who refuse to get vaccinated instead? The notion has appeal because many unvaccinated people create higher costs for themselves and others by choice. That path comes with problems, however. Allowing direct price increases would require an unlikely intervention by Congress. And while wellness incentives can take the form of a penalty, that could be more likely to be viewed as coercive or punitive than a discount, creating possible regulatory problems.

Incentives are most likely to be used by businesses that feel like they can’t require vaccination because of employee resistance or a tight labor market. A substantial fine may alienate employees in the same way as a mandate. The middle of a surging pandemic is also a bad time to do something that might encourage people to drop or avoid coverage.

For employers, then, increasing positive incentives seems to be the better way to go. As for government plans like Medicare and Medicaid that cover about a third of Americans, it may be the only option. These programs likely can’t penalize the unvaccinated, but private insurers that run Medicaid or Medicare Advantage plans can offer rewards.

Health plans can spend significant sums and still come out ahead. After all, there are obvious savings in avoiding unnecessary illnesses and hospitalization. But the benefits of broad vaccination go beyond that. It means fewer sick and quarantine days that disrupt businesses. And it could diminish continuing costs from COVID’s long-term effects and the health issues that can arise when people postpone needed care during case surges.

It’s an investment worth making.