Employers nationwide are considering vaccine incentives and potential penalties for workers who remain unvaccinated against Covid-19. Recent news coverage indicates that many employers across the country are considering levying premium surcharges for employees who participate in their company's healthcare plan and choose to remain unvaccinated. There are many factors under consideration with these kinds of decisions, but there is a potential compliance and fiscal wrinkle that may not always be on radar—the Affordable Care Act (ACA) ramifications related to how those surcharges, or penalties, affect the affordability of an employer's health plans.

The ACA requires "applicable large employers" (ALEs) to offer affordable healthcare benefits to eligible employees or pay a penalty. Within the ACA law lie very specific rules governing the design of wellness programs, especially regarding incentives and penalties (premium surcharges).

Here's how surcharges applied to health plan premiums may be impacted by ACA requirements:

• Under the ACA, the employee premium cost for your lowest-cost plan that meets minimum value must meet affordability guidelines.
• In 2021, affordability is achieved when an employee's cost for health insurance benefits is no more than 9.83 percent of that employee's household income. This percent is adjusted each year, and safe harbors apply.
• Under current ACA guidelines, a premium surcharge for choosing to be unvaccinated against Covid-19 could be applied to the cost of your organization's lowest-cost health plan.
• If the cost, including the surcharge, renders the plan unaffordable, and the employee goes to the exchange and receives a premium tax credit, the employer may be subject to Penalty B. The $4,060-per-year penalty can be multiplied by the total number of full-time employees who did not have an offer of affordable coverage and who also receive a premium tax credit.

Employers may be familiar with or have a tobacco surcharge—a common penalty leveraged by employers to help mitigate healthcare costs resulting from tobacco use—which is a big exception to the rules described above. Typically, smokers face health plan premium surcharges if they fail to quit using tobacco products and if they fail to comply with reasonable alternatives, such as completing a tobacco cessation program. Under the ACA, if the employee has access to cost-free tobacco cessation services, the smoking surcharge is not applied in the affordability calculation.