Lighting up may cost you under the Affordable Care Act. The health-care law bars insurers from charging people higher premiums for costly health conditions, so diabetics or cancer patients pay the same rate as healthy people the same age. But there’s an exception for the 19 percent of American adults who smoke: Insurance companies can charge them premiums as much as 50 percent higher than nonsmokers will pay.
Not all insurers will squeeze smokers. Some states, including California, New York, New Jersey, and Massachusetts, ban the practice. Even where it’s allowed, insurance carriers may want to avoid alienating customers with higher premiums. Many are forgoing the surcharges or tacking on smaller fees than the federal law allows.
Still, some health plans in at least eight states are charging tobacco users the maximum 50 percent extra, according to data gathered by ValuePenguin, an insurance comparison website, and analyzed by Bloomberg Businessweek. That group includes Idaho, Indiana, Iowa, Montana, Nebraska, Oregon, Texas, and Wisconsin.
In 10 states, every health plan with quotes available to ValuePenguin charged smokers at least 15 percent more than nonsmokers. The company gets its data from rates that insurers file with their state regulators and from quotes on insurance company websites. All told, ValuePenguin looked at nearly 3,500 policies and was able to determine the tobacco surcharges for three-quarters of them.
These surcharges apply to individual health policies. Employer health plans can charge smokers more only through wellness programs that give workers a chance to lower premiums.
Most insurance companies applied the same surcharge across all their health plans in a state—and sometimes across different states. Aetna and Humana typically add 10 percent. PacificSource Health Plans, which sells coverage in Oregon, Idaho, and Montana, has a 50 percent surcharge, according to ValuePenguin’s data.
Low-income Americans are more likely to smoke than the wealthy, and the surcharges will hit them particularly hard. That’s because the premium tax credits meant to help people with modest incomes afford coverage can’t be used to pay for the tobacco penalties.
Take 30-year-olds earning $20,000. If they select policies that cost $240 a month, subsidies will pay for all but $85 of their premiums, according to the Kaiser Family Foundation subsidy calculator. But a 50 percent smoking surcharge—at $120 a month—would more than double their monthly insurance bill.
Sounds like a strong incentive to quit, right? Here’s the problem: A smoker in the U.S. who goes through two packs a week pays, on average, more than $800 a year for the privilege—and much more in high-tax jurisdictions such as New York. That’s already a pretty strong incentive to quit, even ignoring the health benefits.
This is part of the reason public health groups trying to curb smoking don’t think the surcharges will help. Higher insurance rates for tobacco users “are an unproven theory to improve public health,” the American Lung Association wrote (PDF) in a letter opposing the surcharges. The American Cancer Society’s Cancer Action Network echoed that concern (PDF) and warned that “higher health insurance premiums due to the tobacco surcharge will create a barrier for individuals who need coverage the most.”
Deciding exactly what constitutes “tobacco use” is a separate problem. If you bum a cigarette or two on Friday night, will your premiums go up? Regulators settled on a specific threshold: Surcharges can apply only to people who smoked (or used other tobacco products) at least four times a week, on average, within the last six months, although states or insurers can use narrower definitions.
What if consumers simply lie when they apply for insurance? Insurers can’t cancel their policies, but they can retroactively try to collect the surcharge. Depending on how aggressively insurance companies go after fibbing smokers, the tobacco fee may become something more perverse: a penalty for being honest.