COVID-19 Vaccination Issues for Employers

September 3, 2021

A Review of the Rules for Mandatory Vaccination, Group Health Plan Design, and Vaccine Incentives

Ongoing concerns about COVID-19, the spread of the Delta variant, and the circulation of articles and reports addressing how insurance carriers and certain employers propose to deal with vaccine mandates and group health plan issues are generating many questions from employers nationwide about what they can or may be able to do about this.

This Alert addresses the following issues (and related items):

  • Whether employers can require vaccination;
  • Whether employers can condition group health plan eligibility on vaccination;
  • Whether employers can exclude coverage for medical claims caused by COVID-19; and
  • Whether employers can impose premium surcharges for unvaccinated employees (or other non- plan based incentives).

Can an Employer Require Vaccination?

Employers generally can require their employees to vaccinate against communicable diseases (including COVID-19) when vaccination is not otherwise required by federal, state, or local law.1 State and local laws are generally favorable toward requiring COVID-19 vaccination, but certain states have taken action to restrict employers from doing so (e.g., Arizona, Florida, and Montana).

Employers should review whether federal, state, or local laws limit their ability to require vaccination with their labor & employment counsel prior to implementing a mandate. We will address two exceptions employers must consider under federal law when requiring vaccination below.2

Disability Exception under Title I of the Americans with Disabilities Act (ADA)

An employer cannot require an employee who has a disability making vaccination inadvisable to comply with the employer’s vaccination mandate or face consequences unless the employer determines the employee represents a direct threat to the employer’s workplace that a reasonable accommodation cannot resolve. This determination includes the following steps:

  • Does the employee have a qualifying disability? An employer may request a supporting physician’s statement that the employee has a disability making vaccination inadvisable.
  • Does the employee pose a direct threat to the workplace if not vaccinated? This includes a threat to employees and/or others in the workplace (e.g. customers, clients, patients, students). Factors to consider whether a direct threat exists include the duration of the risk of harm, the nature and severity of the potential harm, the likelihood the harm will occur, and the imminent threat of potential harm.
  • Will a reasonable accommodation eliminate or sufficiently reduce the risk of harm? Employers must implement reasonable accommodations if they will resolve the direct threat by eliminating or sufficiently reducing the risk of harm. An accommodation is reasonable if it will not result in undue hardship to the employer, and undue hardship includes a significant financial burden or disruption to operations. Common examples of accommodations – without analysing whether they are reasonable for a given employer – include masking, distancing, remote employment, improving safety protocols, and/or modifying the workspace.

If an unvaccinated employee poses a direct threat and no reasonable accommodation will sufficiently remove the risk of harm, the employer may be able to take employment action, including reassignment, a mandatory leave of absence, or potentially termination as a last resort (but see our caution below).

Religious Exception under Title VII of the Civil Rights Act

An employer must provide a reasonable accommodation to an employee claiming a religious objection to vaccination unless the accommodation poses an undue hardship to the employer. This determination includes the following steps:

  • Does the employee have a sincerely held religious belief, practice or observance preventing vaccination? An employer may request the employee provide supporting information, but the EEOC indicates employers should give employees the benefit of the doubt that a religious observance is preventing vaccination. Please note that simply being an “anti-vaxxer” does not qualify for the religious exception.
  • Will a reasonable accommodation eliminate or sufficiently reduce the risk of harm? Employers must implement reasonable accommodations if they will eliminate or sufficiently reduce the risk of harm. An accommodation is reasonable if it will not result in undue hardship to the employer, and undue hardship includes a significant financial burden or disruption to operations. Please see above for common examples of accommodations.


If an unvaccinated employee poses an unacceptable risk of harm for the employer and no reasonable accommodation will sufficiently remove it, the employer may be able to take employment action, including reassignment, a mandatory leave of absence, or potentially termination as a last resort.

Caution! We cannot stress enough that employers should consult with their legal counsel when going through this process, especially before taking employment action against an unvaccinated, disabled employee or employee objecting on religious grounds. The direct threat standard is high. Employers should not leap to the conclusion that there is a direct threat that an accommodation cannot resolve.

Other Labor & Employment Vaccination Considerations

As a best practice, the Equal Employment Opportunity Commission (EEOC) recommends employers implementing a COVID-19 vaccination policy and requiring documentation or other confirmation of vaccination notify all employees that the employer will consider requests for reasonable accommodation based on disability on an individualized basis. If an employer requires and retains proof of vaccination, it is a confidential medical record for ADA purposes and is subject to protections similar to HIPAA’s Privacy rules for protected health information.

The EEOC also recommends employers provide managers, supervisors, and those responsible for implementing the policy with clear information about how to handle accommodation requests before instituting a mandatory vaccination policy. This includes training these individuals on how to identify and escalate accommodation requests for consideration (i.e., A request can occur without “magic” words).

Since a vaccination requirement is an employment policy, employers should consider whether their policies might have a disparate impact on employees based on race, color, sex/gender, age, or other protected statuses. Some employers may need to make policy adjustments based on these considerations or due to discrimination claims.3

We encourage employers to consider their particular circumstances and work with legal counsel to develop a vaccination policy.

Group Health Plan Design and Incentive Issues

Employers are also exploring options to limit their medical plan exposure to COVID-19 claims, and we will address the most common below. Employers may be surprised to discover they have more flexibility to condition employment on vaccination than they do to restrict or limit health coverage.

Can we condition eligibility on vaccination?

No. The HIPAA non-discrimination rules specifically prohibit all group health plans (including both fully insured and self-insured medical plans) from discriminating against individuals based on a health factor, and an employee’s vaccination status is a health factor. HIPAA permits employers to vary or deny coverage – including restricting eligibility – to different employee population groups based on bona-fide employment classifications4 consistent with their other business practices, but employers cannot separately classify a group and deny eligibility based on vaccination status.5

Can a group health plan exclude coverage for COVID-related claims?

No. If an employer’s medical plan covers a particular service or treatment, excluding it due to COVID-19 is also a HIPAA nondiscrimination violation. For example, if the plan covers inpatient hospitalization, it cannot deny medically necessary inpatient hospitalization care due to COVID-19. An exclusion for COVID- 19 is impermissible discrimination due to a health factor under HIPAA.

HIPAA’s nondiscrimination rules do allow for source-of-injury exclusions for participation in dangerous activities. For example, a group health plan could exclude coverage for injuries sustained while riding a motorcycle.6 However, the source-of-injury exclusion only applies when the activity is the direct cause of the illness or injury. Whether or not you consider failing to vaccinate as a potentially dangerous activity, it does not directly cause an individual to contract COVID-19. The source-of-injury exclusion also cannot apply for illness or injuries caused by domestic violence or an underlying medical condition.

Notes: Existing federal law mandates coverage for COVID-19 testing and vaccination. Certain state laws may also apply, although self-insured ERISA plans may claim ERISA pre-emption from them.

Can a group health plan impose a premium surcharge for failure to vaccinate?

Yes. This is a health contingent, activity-only wellness program under HIPAA’s wellness rules, meaning the following apply:

  • HIPAA’s incentive limits – The surcharge will count against the employer’s HIPAA incentive limits. The wellness rules are outside the scope of this Alert, but the limit is generally 30% of the total cost of employee coverage. This is also a cumulative limit for all health contingent wellness activities.
  • Reasonable alternative standards – A reasonable alternative standard (RAS) must be available to participants for whom vaccination is: (1) medically inadvisable; or (2) unreasonably difficult due to a medical condition. Few should qualify for RAS, and an employer can require a supporting physician’s statement. Separately, we believe employers should also provide an alternative for employees who are able to claim a religious objection to vaccination.
  • Annual opportunity – The plan must give participants a meaningful opportunity to avoid the surcharge at least once per plan year.

We recommend employers using premium surcharges not ask any employee participant why s/he did not vaccinate, because the mere question triggers the ADA’s wellness rules. The ADA’s wellness incentive limits are currently uncertain, but the EEOC indicated it would reject “coercive” incentives in the context of vaccination.7 It is difficult to believe the EEOC will determine a monthly premium surcharge is not coercive (even a $10/month surcharge is $120 annually).8 The ADA’s wellness rules also apply if the employer conducts onsite vaccination, directly facilitates offsite administration, or administers pre- screening assessments for offsite vaccination.

Note: If an employee is avoiding vaccination because s/he believe the vaccine is dangerous, a premium surcharge is unlikely to make any difference. As of August 23, 2021, the Pfizer-BioNTech has full FDA approval for ages 16+ and is no longer operating under an emergency use authorization. The Moderna vaccine should soon follow. This may alleviate concerns about vaccine safety. An employer experiencing a labor shortage and/or in a tight labor market, may wish to consider whether the surcharge will result in employee turnover.

Qualifying life event

If an employer implements a premium surcharge during a medical plan year in progress, it may trigger a qualifying life event permitting existing participants to change elections and/or drop coverage if the surcharge results in a significant increase in cost.9

A premium surcharge for unvaccinated employees will affect affordability calculations under the Affordable Care Act (ACA)

If wellness incentives affect premiums for the lowest cost self-only plan option offered by an employer, the ACA’s affordability calculation rules indicate employers must treat employees as satisfying any tobacco- related incentive and failing all other incentives. This means the employer must treat all eligible employees as unvaccinated for affordability calculation purposes. An employee’s actual vaccination status does not matter.

The employee-only contribution for the lowest cost, minimum value medical coverage offered by ABC Company is $110/month for the January 1, 2022 – December 31, 2022 plan year. ABC Company also implements a $100/month premium surcharge for unvaccinated employees for the 2022 plan year.

For ACA affordability calculation purposes, the employee-only cost of coverage for the 2022 plan year is $110/month + $100/month = $210/month for all eligible employees whether vaccinated or not. ABC Company must also report $210/month on its 2022 Forms 1095-C, Part II, Line #15.

Cash incentives for vaccination

If an employer merely offers a cash incentive for employees who provide proof of vaccination, HIPAA’s wellness rules do not apply. The cash incentive is taxable income when paid, as is any gift card or other cash equivalent.

As above, if the employer asks an employee why s/he did not vaccinate, it triggers the ADA’s wellness rules (including its accommodation rule). A small one-time cash incentive should avoid the EEOC’s warning about “coercive” incentives. The EEOC did not set a limit for coercion, but we believe $50 is a reasonable rule-of-thumb and recommend against exceeding $100.

Note: Remember that proof of vaccination is a confidential medical record for ADA purposes.

Join Marsh McLennan Agency for a timely 3-part webcast series designed to bring you up to speed on the latest business, compliance, and FDA developments related to the COVID-19 vaccines.  During this series, we will bring together subject matter experts to highlight employer considerations and to help you make informed business decisions.  Please sign up for one or all three of the sessions here!

1 Certain industries, such as health care, public education, and childcare, are frequently subject to vaccine mandates under federal, state, or local law.

2 The same analysis applies to COVID-19 testing.

What You Should Know About COVID-19 and the ADA, the Rehabilitation Act, and Other EEO Laws, G.6; K.1; K.6 (most recently updated May 28, 2021).

4 Bona-fide employment classifications include differentiations based on full-time vs. part-time employees, salaried vs. hourly employees, current vs. former employees, employees working in different geographic locations, job classification, date of hire, and collective bargaining status.

5 Other nondiscrimination rules may apply, such as certain nondiscrimination rules under the Internal Revenue Code.

6 The plan materials must explicitly identify this exclusion.

7 What You Should Know About COVID-19 and the ADA, the Rehabilitation Act, and Other EEO Laws, K.17 (most recently updated May 28, 2021).

8 In this context, the ADA’s accommodation rules should effectively be redundant with the already applicable HIPAA RAS requirement.

9 The rules rely on a subjective standard to determine if a change is significant. We tend to use a 10% increase as a general rule of thumb.