The Clinton Herald, Clinton, Iowa

July 17, 2013

The smoker dilemma for health insurance

By Michelle Andrews
Special to The Washington Post

— Since smokers' health-care costs tend to be higher than those of nonsmokers, is it reasonable for smokers to pay higher premiums when they buy insurance through the new state marketplaces that are scheduled to open in October? A handful of states and the District of Columbia say the answer is no.

"We decided it's not in the good interests of our people" to charge smokers more, says Mohammad Akhter, chairman of the D.C. Health Benefit Exchange Authority, which is developing the District's online marketplace.

Under the 2010 Affordable Care Act, health insurers are allowed to charge smokers 50 percent higher premiums than nonsmokers for new policies sold to individuals and small employer groups.

States have the option to reduce or eliminate the variation in rates, however, and six states and the District have opted not to charge smokers more, according to the Department of Health and Human Services. A few others have limited the premium differential to less than 50 percent. Virginia will apply the full 50 percent surcharge.

Consumer advocates say charging smokers more for health insurance may be counterproductive.

"There's no evidence that charging someone a higher premium will discourage them from smoking," says Dick Woodruff, vice president of federal relations at the American Cancer Society Cancer Action Network.

It might, however, discourage someone from buying health insurance, experts say. The health law requires many plans to cover FDA-approved smoking cessation services such as counseling and medication as a preventive benefit without charging consumers anything out of pocket. If health insurance coverage seems too expensive, fewer smokers will be able to take advantage of tools to help them quit, Woodruff says.

Experts say that smokers disproportionately have lower incomes, so that a premium surcharge will hit them especially hard. Tax credits to help pay for health insurance are available to people with incomes up to 400 percent of the federal poverty level ($45,960 for an individual in 2013). But the tax credit can't be used for the tobacco surcharge.

What might this mean financially for a smoker?

The annual premium for a 40-year-old nonsmoker with a $35,000 income would be $3,857 for a typical plan that will be available on state exchanges, according to the Kaiser Family Foundation's exchange subsidy calculator. This person would be eligible for a $532 tax credit, reducing his payment to $3,325.

But if that individual smoked, his cost would increase substantially. He would get the same $532 tax credit, but the premium would be 50 percent higher, or $5,786, meaning he'd have to pay $5,254.

The toll from the surcharge, however, may be tempered, at least temporarily, for some smokers. Last week, the Obama administration announced that some technical problems would make it difficult to process some older smokers' premiums, and it told insurers not to charge older smokers more than three times what younger smokers pay, at least for now.

So how will insurers know if someone smokes?

"It's going to be an honor system, basically, with people acknowledging that they're a smoker," Woodruff says.

If an insurer finds out that someone hasn't told the truth, it can charge the policyholder for any surcharge amounts that should have been paid that year. But the insurer can't rescind the policy or deny the liar continued coverage, according to the final rule governing the issue.

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This column is produced through a collaboration between The Post and Kaiser Health News. KHN, an editorially independent news service, is a program of the Kaiser Family Foundation, a nonpartisan health-care-policy organization that is not affiliated with Kaiser Permanente.