Marketplace Insurance Policy Adjustments: Converting Nonsmoking To Smoking Status

Smoking and health insurance don't go hand in hand. Tobacco use can have a significant impact on the cost of medical coverage. In most states, insurers can charge up to 50% more for a person who uses tobacco products. This is known as a tobacco surcharge or tobacco rating. However, some states have banned or limited tobacco surcharges, and it's important to check with your state's Marketplace to understand the specific rules that apply. Being honest about your smoking status when applying for health insurance is crucial, as misrepresentation may be considered insurance fraud and can result in serious legal consequences.

The definition of tobacco use

Tobacco use may be defined as any habitual use of the tobacco plant leaf and its products. Tobacco is the common name of several plants in the genus Nicotiana of the family Solanaceae, and the general term for any product prepared from the cured leaves of these plants. More than 70 species of tobacco are known, but the chief commercial crop is N. tabacum. The more potent variant N. rustica is also used in some countries.

Tobacco contains the highly addictive stimulant alkaloid nicotine as well as harmala alkaloids. Tobacco use is a cause or risk factor for many deadly diseases, especially those affecting the heart, liver, and lungs, as well as many cancers.

Tobacco use is defined by the Centers for Medicaid and Medicare Services (CMS) as the "use of a tobacco product or products four or more times per week within no longer than the past 6 months by legal users of tobacco products (generally those 18 years and older) and includes all tobacco products." This definition is also used by the Affordable Care Act (ACA) to determine tobacco surcharges.

Tobacco products encompass a wide range of items, including cigarettes, cigarette tobacco, roll-your-own tobacco, smokeless tobacco, electronic cigarettes, cigars, hookahs, pipe tobacco, nicotine gels, and dissolvables. The smoke produced when tobacco is burned consists of more than 4,000 chemical compounds, many of which are highly toxic. The primary constituents of tobacco smoke are nicotine, tar, and gases such as carbon dioxide and carbon monoxide.

The harmful effects of tobacco use are not limited to the user. Environmental tobacco smoke, or secondhand smoke, poses serious health risks to those exposed, including lung cancer and cardiovascular disease.

Tobacco rating

The practice of charging tobacco users more for health insurance is called tobacco rating. Tobacco rating allows insurance companies to charge smokers up to 50% more than non-smokers through a tobacco surcharge. This surcharge is not mitigated by premium tax credits.

The justification for tobacco rating is that tobacco use is a voluntary behaviour that increases health costs and can lead to higher-priced coverage. If insurers aren't allowed to adjust rates based on tobacco use, they will spread the costs connected with tobacco-related illness across the wider population, thereby raising premiums for non-smokers. Tobacco surcharges are also considered a financial incentive for smokers to quit.

However, tobacco rating may jeopardise access to affordable insurance for many consumers, especially those with lower incomes. For example, a non-smoker earning $17,000 a year who receives federal premium assistance will pay annual premiums of around 4% of their income (about $700). For a smoker with similar income and tax credits, the price tag for coverage nearly quadruples. Given this, those who might be well-served by coverage may be unable to afford it.

Not all states have the same tobacco rating rules. Currently, seven states and Washington, D.C., prohibit insurers from charging smokers extra. Three other states allow a surcharge of less than 50%. In the remaining 40 states, smokers can be charged 50% more for monthly premiums compared to non-smokers.

Tobacco surcharges

The ACA brought significant changes to how individual and small group health insurance premiums are determined. Insurance companies can no longer base premiums on an applicant's medical history or reject applicants due to pre-existing conditions. However, the ACA allows insurers to adjust premiums based on four factors: geographic location, age, family size, and tobacco use.

The Centers for Medicaid and Medicare Services (CMS) defines 'tobacco use' as the "use of a tobacco product or products four or more times per week within no longer than the past 6 months by legal users of tobacco products (generally those 18 years and older) and includes all tobacco products." This includes e-cigarettes, vaping, traditional cigarettes, cigars, chewing tobacco, and pipe smoking. However, tobacco use for religious or ceremonial purposes is excluded.

While the ACA allows tobacco surcharges, some argue that higher health insurance premiums make health coverage less accessible to tobacco users. If people cannot afford health insurance, they cannot access the free tobacco cessation coverage included with ACA-compliant health plans.

It is important to note that if you are paying a tobacco surcharge and have quit the habit at least six months ago, you can update your information when your health plan renews for the coming year, and your rates will be adjusted accordingly.

The impact of tobacco surcharges

Tobacco surcharges have a significant impact on health insurance enrollment, particularly for smokers. The Affordable Care Act (ACA) allows insurers to charge tobacco users up to 50% higher premiums, making tobacco use the only behavioural factor that influences premium rates in the non-group insurance market. This practice, known as tobacco rating, is implemented to encourage smokers to quit and compensate for the excess healthcare costs associated with tobacco use. However, it has sparked debates about fairness and accessibility.

Impact on Enrollment

States that permit tobacco surcharges generally experience a reduction in health insurance enrollment among smokers. Research reveals that smokers in these states are 4-12% less likely to have health insurance coverage. The decline is more pronounced in states with higher surcharges, and among younger adults, which is crucial for risk pooling in insurance markets. Interestingly, smokers in states without surcharges exhibit higher enrollment rates, indicating that the surcharge itself, rather than other state-specific factors, drives this trend.

Impact on Smoking Cessation

Impact on Affordability

Tobacco surcharges can make health insurance unaffordable, especially for low-income individuals. This is exacerbated by the fact that tobacco surcharges are not covered by ACA premium subsidies. As a result, smokers may be unable to afford coverage and thus lose access to tobacco cessation programs offered by insurance plans. This defeats one of the primary goals of the ACA—increasing financial protection.

Impact on Vulnerable Populations

Tobacco surcharges disproportionately affect certain demographics. Lower-income Americans and racial minorities have higher rates of tobacco use and are more likely to be burdened by higher premiums. Additionally, individuals with psychological distress or depression, who are more likely to smoke, may face higher premiums or reduced insurance coverage due to tobacco surcharges.

Impact on State-Level Policy

Recognising the potential negative consequences of tobacco surcharges, several states have chosen to prohibit or limit them. As of 2020, seven states and Washington D.C. prohibit tobacco surcharges, while three states have set caps below the 50% federal limit. These state-level policies have a substantial impact on insurance enrollment among smokers, with lower surcharges or no surcharges leading to higher enrollment rates.

The Affordable Care Act (ACA)

The ACA was designed to extend health coverage to millions of uninsured Americans by expanding Medicaid eligibility, creating health insurance exchanges, and preventing insurance companies from denying coverage due to pre-existing conditions. The law also requires insurers to cover a list of essential health benefits, such as emergency services, family planning, maternity care, hospitalization, prescription medications, mental health services, and pediatric care.

Under the ACA, health insurance premiums are based on factors such as the plan category, the number of individuals on the policy, age, location, and tobacco use. The practice of charging tobacco users more is called tobacco rating, and the ACA allows insurance companies to charge smokers up to 50% more than non-smokers through a tobacco surcharge. However, not all states have implemented this charge, and some even prohibit insurers from applying a tobacco surcharge.

The ACA includes requirements for employers regarding health care coverage, with the size and structure of the workforce determining the employer's responsibility. The law also provides tax credits to certain small businesses that cover specified costs of health insurance for their employees.

The ACA was created to reform the health insurance industry and help reduce the cost of health insurance coverage for individuals who qualify. It includes premium tax credits and cost-sharing reductions to lower expenses for lower-income individuals and families. The law also requires insurance plans to cover preventive care services such as immunizations and screenings at no cost to policyholders.

Every year, there is an open enrollment period on the Health Insurance Marketplace during which people can buy or switch insurance plans. Enrollment outside of the open season is allowed only if an individual experiences a qualifying life event, such as marriage, divorce, becoming a parent, or losing a job that provided health insurance coverage.

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