Health insurance carriers have, in the past, established higher premiums for policyholders who used tobacco products as compared to policyholders who abstained. It was generally accepted that users of tobacco products would generate higher claims expense because they would access the healthcare system in response to health issues attributed to the tobacco use. Tobacco use, in addition to other demographic factors such as gender and age, were used to adjust premiums to account for higher claims expense. In cases other than those related to tobacco use, ACA has removed or reduced the premium adjustment practice by health insurance carriers. Effective January 1, 2014 female policyholders will pay the same premium as male policyholders, and older policyholders will be charged no more than three times the rate of younger policyholders. However, tobacco users will not receive the same premium adjustment consideration. Tobacco users could be subject to a 50 percent premium adjustment.
Critics of the tobacco premium adjustment believe that the higher premiums will be borne by lower income individuals because a greater number of them use tobacco products. For example, 28 percent of individuals at less than 138 percent of the Federal Poverty Level (FPL) reported that they used tobacco every day or some days. This usage compares to only 12.8 percent of individuals above 400 percent of the FPL.
The penalty for tobacco users will be even more severe because the premium adjustment will not be eligible for federal premium assistance. Tobacco users will pay the entire cost of the premium adjustment with no financial assistance from the federal government. Estimates from the Institute for Health Policy Solutions project that the tobacco use adjustment will increase low-income individual’s share of premiums from $709 to $3,308.
The premium adjustment based on tobacco use has created a strange alliance between groups that were previously adversaries. Tobacco companies and the American Cancer Society believe that the practice of adjusting premiums based on tobacco use is discrimination against smokers and will drive up the premium cost, especially with lower income individuals, which will result in less participation. Health insurance carriers respond by making the point if premiums are not adjusted for tobacco users, then premiums for all policyholders will need to be increased to account for the higher claims expense.
Opponents of the premium adjustment are planning to address the regulation on a state-by-state basis because the authority to prohibit health insurance carriers from increasing premiums based on tobacco use rests with the individual states. Currently, California, Massachusetts, New Jersey, New York, Rhode Island, Vermont and Washington D.C., prohibit insurance carriers from increasing premiums based on tobacco use.
Another factor to consider regarding the premium adjustment practice is what constitutes tobacco use. The states that currently allow a tobacco use surcharge do not have a consistent definition of tobacco use. The Department of Health and Human Services (HHS) proposed establishing a standard question format and requested comments from stakeholders on how to implement the practice during the application process.
Comments were submitted by 70 groups. The comments centered on defining a time period for tobacco use. Some groups such as the Campaign for Tobacco Free Kids commented that the time frame should not be so short as to allow individuals to define themselves non-tobacco users if they ceased tobacco use on the day they applied for health insurance. In contrast, the group did not want to make the time period so long as to define individuals as tobacco users if they had actually stopped using the product.
The health insurance industry wanted the time frame to be determined by two questions. “Have you used tobacco in the last twelve months?” and “Are you currently using tobacco products The American Cancer Society wanted a more lenient time frame by only requiring no tobacco use within 30-days prior to the application.
The financial implications of tobacco use and how the use is reflected in premiums are significant. The regulatory battle is just beginning, and it may be a long time before the smoke clears.
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