The Premium Conundrum: Do Smokers Get a Fair Break Under Obamacare?

The Affordable Care Act contains a number of provisions intended to incent “personal responsibility,” or the notion that health care isn’t just a right — it’s an obligation. None of these measures is more prominent than the law’s individual mandate, designed to ensure that every American obtains health coverage or pays a fine for choosing to go uninsured.

But one provision that’s gotten much less attention — until recently — relates to smoking; specifically, the ACA allows payers to treat tobacco users very differently by opening the door to much higher premiums for this population.

That measure has some health policy analysts cheering, suggesting that higher premiums are necessary to raise revenue for the law and (hopefully) deter smokers’ bad habits. But other observers have warned that the ACA takes a heavy-handed stick to smokers who may be unhappily addicted to tobacco, rather than enticing them with a carrot to quit.

Possible Pain Lies Ahead for Tobacco Users

Under proposed rules, HHS would allow insurers to charge a smoker seeking health coverage in the individual market as much as 50% more in premiums than a non-smoker.

That difference in premiums may rapidly add up for smokers, given the expectation that Obamacare’s new medical-loss ratios already will lead to major cost hikes in the individual market. “For many people, in the years after the law, premiums aren’t just going to [go] up a little,” Peter Suderman predicts at Reason. “They’re going to rise a lot.”

Meanwhile, Ann Marie Marciarille, a law professor at the University of Missouri-Kansas City, adds that insurers have “considerable flexibility” in how to set up a potential surcharge for tobacco use. For example, insurers could apply a high surcharge for tobacco use in older smokers — perhaps several hundred dollars per month — further hitting a population that tends to be poorer.

Attitudes on Smoking Help Inform Policy

Is this cost-shifting fair? The average American tends to think so.

Nearly 60% of surveyed adults in a 2011 NPR-Thomson Reuters poll thought it was OK to charge smokers more for their health insurance than non-smokers. (That’s nearly twice the number of adults who thought it would be OK to charge the obese more for their health insurance.)

And smoking does lead to health costs that tend to be borne by the broader population. Writing at the Incidental Economist in 2011, Don Taylor noted that “smoking imposes very large social costs” — essentially, about $1.50 per pack — with its increased risk of cancers and other chronic illness. CDC has found that smoking and its effects lead to more than 440,000 premature deaths in the United States per year, with more than $190 billion in annual health costs and productivity loss.

As a result, charging smokers more “makes some actuarial sense,” Marciarille acknowledges. “Tobacco use has a long-term fuse for its most expensive health effects.”

But Louise Norris of Colorado Health Insurance Insider takes issue with the ACA’s treatment of tobacco users.

Noting that smokers represent only about 20% of Americans, Norris argues that “it’s easy to point fingers and call for increased personal responsibility when we’re singling out another group — one in which we are not included.”

As a result, she adds, “it seems very logical to say that smokers should have to pay significantly higher premiums for their health insurance,” whereas we’re less inclined to treat the obese differently because so many of us are overweight.

This approach toward tobacco users also raises the risk that low-income smokers will find the cost of coverage too high and end up uninsured, Norris warns. She notes that tax credits for health coverage will be calculated prior to however insurers choose to set their banding rules, “which means that smokers would be responsible for [an] additional premium on their own.”

Alternate Approach: Focus on Cessation

Nearly 70% of smokers want to quit, and about half attempt to kick the habit at least once per year. But more than 90% are unable to stop smoking, partly because of the lack of assistance; fewer than 5% of smokers appear able to quit without support.

That’s why Norris and others say that if federal officials truly want to improve public health, the law should prioritize anti-smoking efforts like counseling and medication for tobacco users. And the ACA does require new health insurance plans to offer smoking cessation products and therapy.

But as Ankita Rao writes at Kaiser Health News, the coverage of those measures thus far is spotty. Some plans leave out nasal sprays and inhalers; others shift costs to smokers, possibly deterring them from seeking treatment.

Some anti-smoking crusaders hope that states will step into the gap and ramp up cessation opportunities, such as by including cessation therapy as an essential health benefit.

“The federal government has missed several opportunities since the enactment of the ACA to grant smokers access to more cessation treatments,” the American Lung Association warned in November. “Now, as states are beginning implementation of state exchanges and Medicaid expansions, state policymakers have the opportunity to stand up for smokers in their states who want to quit.”

Here’s what else is happening around the nation.

Administration Actions

  • Last week, HHS awarded $1.5 billion in grant funding to help 11 states establish or develop their health insurance exchanges under the Affordable Care Act. The grants were given based on the progress of the exchanges. Six states received a one-year Level One Exchange Establishment Grant to help them establish their exchange. The five other states, including California, received a multiyear Level Two Exchange Establishment Grant to help them further develop their exchanges that already are under construction (Viebeck, “Healthwatch,” The Hill, 1/17).

Effects on Employers

  • Several U.S. universities and colleges are reducing the work hours of adjunct professors to avoid the employer mandate in the ACA. Some schools in Ohio and Pennsylvania already have set limits for the current spring semester on the number of classes that adjunct professors can teach. Meanwhile, several other institutions are weighing whether to reduce their adjuncts’ hours or offer coverage (Peters/Belkin, Wall Street Journal, 1/18).
    Inside the Industry
  • UnitedHealth Group plans to participate in between 10 and 25 health insurance exchanges. However, CEO Stephen Hemsley — who made the announcement during a media conference call to discuss the company’s latest financial results — noted that no firm commitment has been made about the insurers’ participation (Reuters/New York Times, 1/17). He said how many exchanges UnitedHealth participates in will be decided based on the setup of each market (Wilde Mathews/Kamp, Wall Street Journal, 1/17).
  • In a letter sent to the White House last week, the National Rural Health Association and 20 state hospital associations urged President Obama to reverse an ACA provision that boosts Medicare payments to Massachusetts hospitals by $367 million each year at the expense of other states. The groups said, “Scarce Medicare funding should reward value and efficiency in health care, not be diverted based on artful manipulation of obscure payment formulas,” adding that “unless this problem is swiftly corrected, it could serve to impede your administration’s goals of moving toward value-based purchasing and accountable care.” (Baker, “Healthwatch,” The Hill, 1/17).

In the States

On the Hill

  • Last week, 45 House Democrats on Tuesday introduced a bill (HR 261) that would amend the ACA to establish a public health insurance option, which they say would help address the federal deficit. The bill would allocate $2 billion to HHS to establish a public option and make funds available to cover the costs of 90 days’ worth of claims. The Congressional Budget Office estimated that the bill would reduce the federal deficit by $104 billion over a decade (Kasperowicz, “Floor Action Blog,” The Hill, 1/16).

Rolling Out Reform

  • Last week, HHS relaunched to mark the beginning of an extensive effort to promote the ACA. HHS Deputy Assistant Secretary for Public Affairs Jason Young said the updated website will help U.S. residents learn how health insurance works, explore their benefit options before open enrollment and determine eligibility for federal subsidies to help purchase coverage. As part of its marketing campaign, HHS plans to use “Health Insurance Marketplace” as the name for the federal exchanges (Kennedy, USA Today, 1/16).

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