Smokers Face Big Penalty Under Health Reform

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Is it really fair to charge a significantly higher premium for smokers who will buy health insurance on the state exchanges next year? Some analysis suggests not.

This post comes from Mark Chalon Smith at partner site Insurance.com.

Add another exclamation point to smoking’s hazards: The habit may mean you pay a lot more for health insurance as provisions of the Patient Protection and Affordable Care Act roll out.

More than 440,000 people die each year because of tobacco use, which also costs about $96 billion in health care, according to the U.S. Centers for Disease Control and Prevention.

The Affordable Care Act allows insurers to charge smokers up to 50 percent more on their premiums when they’re purchasing coverage through a health insurance exchange.

Exchanges are online marketplaces where individuals and small businesses employing up to 50 people can shop for health plans. They will begin operating in October.

At issue: Is the smoking surcharge fair?

The smoking surcharge could end up erasing subsidies for low-income smokers who can’t afford to buy health insurance on their own, says Karen Pollitz, a senior fellow with the Henry J. Kaiser Family Foundation.

She gave the example of someone who can pay only $3,000 for a health plan that costs $6,000, but qualifies under the federal health law for a $3,000 subsidy to cover the difference. After the premium hike, “the tobacco surcharge would knock it back up to $6,000 again,” a full out-of-pocket expense for the smoker, Pollitz says.

The surcharge, which has been criticized by some as discriminating against low-income tobacco users, was included in the ACA to discourage unhealthy behavior and give insurers a way to help control costs associated with this risky — but voluntary — habit, says Pollitz.

“But there may be better ways to get people to stop smoking, like charging more for cigarettes through higher taxes or increasing public awareness campaigns,” she says.

Rick Curtis, president of the Institute for Health Policy Solutions, believes the 50 percent hike would most harm those the ACA was designed to help — people with modest means in need of medical care.

“For somebody who is totally hooked (on smoking) after many years and who is older — and those kinds of people are more expensive (to cover) and often do need more medical care — they have two bad choices. Go without health insurance and be impoverished that way or get health insurance and be impoverished,” Curtis told National Public Radio.

A few states — Massachusetts, Rhode Island, Vermont and the District of Columbia — have already banned tobacco surcharges for plans on their exchanges. California is considering legislation that would do the same.

An analysis of the smoker surcharge under health reform

Curtis and Ed Neuschler, an Institute for Health Policy Solutions colleague, studied the provision’s potential impact in California. Their report, “Tobacco Rating Issues and Options for California Under the ACA,” looks at both sides of the issue.

Calculations based on available data indicate that a 50 percent increase in premiums for smokers could significantly exceed the higher health care costs caused by tobacco use, according to the report.

The authors also say that insurers might use a high tobacco-rating factor as an indirect way to charge more for people with expensive health conditions, such as mental disorders, who are much more likely to smoke. “While charging higher premiums based on health conditions is prohibited under ACA rating rules, the tobacco-rating factor might be used as a legally permitted proxy for health status,” says the report.

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