Charging Smokers More

Kizzie · November 2003

Our CEO has asked us to research whether we can charge a higher medical premium to smokers than to non-smokers (we are currently self-insured for our medical coverage). His concern is based on the various studies that have been published indicating that smokers miss more work, have more medical problems, etc. Aside from the morale concerns; the monitoring concerns; the concerns that we are not targeting other health issues like obesity, etc., I believe that under ERISA we cannot discriminate due to health conditions. Would smoking be covered as a health condition? Further, life insurance companies can ask about health related issues, such as whether a person is a smoker, etc. and can then charge more or decline coverage. Is there a difference between medical and life insurance and what they can and cannot do? Would one way to charge smokers more be to charge everyone a higher medical premium and then reduce the premiums of the non-smokers like is done with some wellness programs?

Any help would be appreciated.

irenesmsaclaims · November 2003

HIPAA prohibits discrimination due to health conditions; HIPAA also prohibits screening (underwriting) of individuals in a group plan. This affects eligibility, rates, etc. If you charge smokers a higher contribution in your self-funded plan, you are discriminating based on what you THINK they might get in the future, which is even worse. Individual life insurance and individual medical insurance have tobacco use taken into consideration in the rate structures. They may and do charge higher premiums. The key word is "individual". Yes, life insurance underwriting may result in ratings, declines, exclusions, etc. based on a review of the applicant's information, exams and medical records, as can individual medical coverage. Usually a self-funded plan utilizes a consultant or actuary to set these rates annually based on trend, experience, etc. Is your company doing this itself??

SMace · November 2003

We charge more for smokers. The other poster is correct that you cannot discriminate because of a health condition. Smoking is a health condition. However, if you offer a reasonable alternative for the person not to be charged more, you can do it. Our reasonable alternative is a smoking cessation program. If they are going through a physician sponsored smoking cessation program (must prove with a note) we do not charge them more. We would also not charge them if their physican writes a note that it would be detrimental to their health to quit smoking (suprise-that hasn't happened yet). We also test them each year to make sure they are tobacco free. If they pass in 2003 they are not charged more in 2004. Just finished our first testing. There are many other issues including other wellness incentives that I have not addressed and would be happy to talk to you about. Before everyone goes crazy, we ran this program by the US DOL in Atlanta. Anyway, I have my hard hat on, bring it on. By the way, we are self-insured and didn't raise our rates last year and are on target this year so far. Knock on wood.

irenesmsaclaims · November 2003

Hmmm, I had to think about this. In the absence of something akin to a PLR on this exception, I would be hesitant to recommend that anyone do this. Would the plan also require people 100 or more pounds overweight be enrolled in a weight reduction program, or a diabetic certify that he/she is maintaining the prescribed diet and medication in order to avoid the cost increase? Of course I believe you that you ran this by the DOL, but a nagging thought persists regarding the IRS' disclaimer about advice from their own employees! Follow at your own risk!!

SMace · November 2003

I do not know what you mean by PLR exception. You are exactly correct about follow at your own risk. Our thoughts were are we going to sit here and take 20% hits on premiums for years or are we going to try to do something about it. We are doing something about it. We also charge ee's more if they do not exercise (honor system) and charge ee's more if they do not participate in our annual health screening (lipids, BP, height, weight, glucose and triglycerides) or get a physical every year (turn in a form). We started with those and will look at other options in the future...could be weight, or diabetes I don't know. We also have a pilot program being developed that gives free/reduced price care and prescriptions for ee's with diabetes, heart conditions, asthma and low back pain (if they follow certain treatment guidelines). In NC our #1 hospital cost was related to back pain. You and your CEO have to decide, sit back and take it or do something. Good luck.

mrsbowden · November 2003

I just think this is very touchy and risky..aren't smokers a protected class..I think it is just too close..I would get legal advice on this one. Just a thought

irenesmsaclaims · November 2003

A Private Letter Ruling from the regulatory agency governing the Plan ie., the IRS. It's a statement in writing sanctioning a plan or provisions. This can come in handy... I admire your efforts in combatting health care costs, but it seems to me to be too close to the edge! I hadn't thought of smoking as a "condition", but rather an "activity", sort of like sky diving,hang gliding or alligator wrestling (depending on your part of the country). I don't think it's a protected condition, as in the ADA, either.

SMace · November 2003

There is no federal protection for smokers other than HIPPA that I know of (again providing reasonable accomodation prevents the "discrimination" in the cost of health insurance). I think there are some state and or local laws that deal with smokers (you can't only hire non-smokers). If you go to page 1421 in Vol. 66, No.5 of the federal register, you can read the rules. I believe it is 45CFR Part 146. You are not getting bad advice from the others that are wary of this. Read the rules and decide if you want to make the leap.

Parabeagle · November 2003

There is no federal protection for smokers. However, many states have enacted laws that prohibit discrimination against those who lawfully use tobacco products (Oregon is one of them).

Balloonman · November 2003

SMace, you rock!!!!
Nice to see someone stepping up, and you are doing it the right way by offering smoking cessation. Fact is smokers should be charged more. I know if I interview two candidates, and all things are equal I would take the non-smoker every time.
Plain and simple they should be charged more. So should people 100#s over weight. Those weight charts are a little on the light side, but 100#s would make sure you were safe.
Oh before others think I am horrible, I am 6' 215#'s, but in great shape working out 6x a week and have completed two Ironman triathlons. Being a little over suggested weight charts alone means nothing. Is it muscle or fat?
My $0.02 worth.
DJ The Balloonman

SMace · November 2003

Thank you Balloonman.

irenesmsaclaims · November 2003

Ok, see last sentence. Can you still test the smokers in the program??

Can plans charge smokers more than non-smokers? Under the bona fide wellness proposed regulations, a plan can only charge smokers more than non-smokers if the plan provides an alternative standard for the smoker to adhere to, such as a smoking cessation program, and the nicotine-addicted smoker declines to participate. As long as the smoker participates in the smoking cessation program, the plan can not penalize the smoker, even if the person never stops smoking.

Kizzie · November 2003

Thank you everyone for your insightful answers. I first thought that this would definitely be a "no-no"; however, when you think it through, we would not provide a lesser benefit to a smoker or deny participation in the plan, which is what I beleive the HIPAA discrimination refers to. The only difference is in the amount we charge to participate. This is not too different than a person who engages in lifestyle practices that are dangerous such as skydiving, bullriding, etc. (although I realize that these are not health conditions). In these cases, you can actually exclude coverage for these lifestyles.

Although I do not relish the thought of proceeding with such a proposal, with the cost of health care ever-increasing, we may have to consider this.

KDub · March 2006

Does anyone out there have a bona fide wellness program under which smokers are charged a higher health plan premium? If so, how do you monitor compliance? I understand people don't have to quit because you must offer a reasonable alternative, but what if somebody doesn't want to go class, doesn't want to wear a patch, etc., but just lies and says they've quit smoking? How are you substantiating that, if at all?

Thanks for your help.

SMace · March 2006

Yes, we do. See above.

If ee's want to qualify for the non-tobacco rate, they have to pass a urine test. Spouses only have to supply a letter from their physician that they are tobacco free.

We have a system set up if someone wants to quit. You can email me if you want to talk about it. It is a complex program.

BTW The reasonable alternative IS quitting. I've yet to see a doctor give me a note that says the ee should continue using tobacco and that if they quit it will be harmful to their health. It may happen, but not yet.

I agree that you should also target other behaviors. We are doing that currently on a voluntary basis- such as weight/exercise and DM. We may up the ante down the road.

To the naysayers... you are going to continue to naysay your way into huge cost increases. You better take the bull by horns now or you are going to regret it. When the CFO and CEO asks what you are doing about your healthcare costs are you going to tell them, well we can switch carriers and raise the deductible? Come on.

mwild3136 · March 2006

I have to say, I'm a naysayer. I have a real problem with this practice (although thank you SMace for outlining what your company does, because I think we'll have to do the same & I'll need a game plan).

My biggest problem with the practice is that I think it's the tip of the iceberg and no one knows how deep the 'berg goes or can go. Today it's smoking, tomorrow it might be obesity, is it foreseeable that it could go towards heredity? Do we create policies whereby anyone with a history of diabetes/cancer/alcoholism/drug addiction/heart disease in their family, would have to pay a higher premium because their risks are higher than someone without the history? What about type A personalities - if someone is too hyper, then they have to pay higher premiums because studies show their behavior puts them in line for increased risks of heart disease. Or, what about people that are poor - do they have to pay more for their premiums because studies show they are more apt to use emergency medicine & not take maintenance drugs because they can't afford them? How about from the news today - a study shows that people in "bad" relationships are at greater risk of heart disease than people in "good" ones. As employers, do the people that spend time with their co-workers, supervisors, HR discussing their lousy marriage have to pay more for health insurance premiums?

I do think we need to address the health issues of Americans and due to the rising costs of insurance we have to look at things from every angle - I'm just not sure I like this angle. Honestly, I don't think enough is done evaluating insurance company practices and how they set their rates. We need that inspector general from New York to investigate the health insurace industry.

KDub · March 2006

How is it that you are comfortable that a doctor can know if someone has quit smoking? How often do you require the doctor's note?

For MWild:

I'm not sure any kind of a wellness program would be available for hereditary conditions, so I don't see this going that far.

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SMace · March 2006

We are fairly comfortable that the note is a good way. It is not perfect, though.

I may not have made this clear, but ee's and spouses have incentives to comply. If a spouse and ee both use tobacco, they pay $14/week more for their insurance.

We did not want to make all spouses come to the plant to pee in a cup. This is a fairly intrusive program and we want to have some "give" in it where we could. You could certainly make everyone pee in a cup. We only make ee's. We do it on their shift and they are paid for the time.

We require a dr's note at the beginning of the cessation program. When they are finished we surprise test them. Then they are a non-tobacco user for the year and will have to recertify the next year.

SMace · March 2006

You walked right into my point. "Since it's the tip of the iceberg and it's kinda scary, let's not do anything." Sit and back and watch your rates grow.

Bottom line- tobacco is bad for you. It causes/contributes to significant health problems. The only counter argument that has any merit is that smokers die quicker so their health costs (from beginning to end) are actually cheaper.

We hacked off the tip and are working our way down. Some people don't like it. I guess they can work somewhere else. If they stay, we will save them money on their health insurance. That's part of my job.

You ask about it moving to genetics (heredity). That is pointless because it is illegal.

KDub · March 2006

[font size="1" color="#FF0000"]LAST EDITED ON 03-03-06 AT 02:10PM (CST)[/font][br][br]So how is it that you are comfortable that a doctor can know if someone has quit smoking? How often do you require the doctor's note?

I happen to agree with you on tobacco, but that is not my issue. I'm just trying to figure out the most effective (and legal) way to monitor a wellness program.

Thanks.

DISCLAIMER: This information is provided for informational purposes only and is not offered as legal advice. This information is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. No person should act upon this information without seeking professional counsel. Do not send us information until you speak with one of our lawyers and get authorization to send that information to us.

SMace · March 2006

Reply #17 was to Wild, not you.

It's too much info to type. If you would like more help, it will be easier to talk about it. Email me and I'll give you my #. If not, good luck. You can do it.

mwild3136 · March 2006

[font size="1" color="#FF0000"]LAST EDITED ON 03-03-06 AT 02:47PM (CST)[/font][br][br]Hi SMace

I didn't walk into your point - you missed mine. x:-) As employers, I agree, we can't just sit back and not do anything - I'm just not sure that I agree philosophically with this approach. You say we can't charge more for people with heredity issues because it's illegal - how is it illegal? The people already work for you & you charge more based on their history & the way you don't charge more is exactly what you are doing for the smokers & overweight folks - as long as they are enrolled in an alternative program (such as wellness initiatives, gym memberships, etc.) then they don't have to pay more.

The program you have at your company is, like I said before, the direction we will more than likely go - I just think it is the wrong direction for all employers...

SMace · March 2006

>[font size="1" color="#FF0000"]LAST EDITED ON
>03-03-06 AT 02:47 PM (CST)[/font]
>
>Hi SMace
>
>I didn't walk into your point - you missed mine.
>x:-) As employers, I agree, we can't just sit
>back and not do anything - I'm just not sure
>that I agree philosophically with this approach.

You don't agree with it, yet your company is probably going to do it??? Huh???

> You say we can't charge more for people with
>heredity issues because it's illegal - how is it >illegal?

I didn't say that. You said what's next... heredity. I was speaking of genetics. It is illegal to take adverse action based on genetic testing.

I interpreted a lot of blah, blah, blah... rhetorical questions and then you say your going to do what I and others suggest. I don't understand.

mwild31 · March 2006

Let me clear things up for you Smace.

First, I am asking a lot of questions right now and they are rhetorical - it's called a conversation. I cetainly don't think that everyone here has all of the answers, but I don't think it's wrong to voice (write) the questions/concerns I do have. I'm not inclined to think that charging people more in health premiums will be THE answer we need to deal with the health crisis in America. I think it's the wrong approach & I hope it doesn't become the main stream. It's a slippery slope. I remember with FML started back in '93 and I never imagined that it would become in the nightmare it is today to administer...

Second, even though I have this opinion, very strongly I concede, I don't own my company. Our President has already indicated that he would like to see us charge more for smokers and those 100+ pounds overweight. Although I would disagree with him - if he wants to do it, then we will do it & I would need a game plan - this is what I meant when I said that I could use the information you presented as a foundation.

Blah, Blah, Blah

Mandi

KDub · March 2006

Mwild:

Do you have a problem with excluding coverage for self-inflicted injuries?

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SMace · March 2006

You didn't ask me but......

You can exclude this in an ERISA plan, however if it is the result of a physical or mental medical condition, it's paying.

I'd have a hard time believing that anyone who tries to kill themself doesn't have a mental condition.

SMace · March 2006

>Let me clear things up for you Smace.
>
>First, I am asking a lot of questions right now
>and they are rhetorical - it's called a
>conversation. I cetainly don't think that
>everyone here has all of the answers, but I
>don't think it's wrong to voice (write) the
>questions/concerns I do have. I'm not inclined
>to think that charging people more in health
>premiums will be THE answer we need to deal with
>the health crisis in America. I think it's the
>wrong approach & I hope it doesn't become the
>main stream. It's a slippery slope. I remember
>with FML started back in '93 and I never
>imagined that it would become in the nightmare
>it is today to administer...
>
>Second, even though I have this opinion, very
>strongly I concede, I don't own my company. Our
>President has already indicated that he would
>like to see us charge more for smokers and those
>100+ pounds overweight. Although I would
>disagree with him - if he wants to do it, then
>we will do it & I would need a game plan - this
>is what I meant when I said that I could use the
>information you presented as a foundation.
>
>Blah, Blah, Blah
>
>Mandi

That cleared things up. Sorry if I was a bit rude. I was in a bad mood.

There is no "right" or "easy" answer. If you are looking for it in healthcare you will never find it. You gotta do what you gotta do.

VS · March 2006

I would be curious just how much money is saved in the end. As soon as companies start saving, the insurance companies raise the rates due to increased operating costs, etc. Think back over the years with your Health Plans, where we used to have High Premium or High Option. Then we gradually forced employees down to lower plans because the high option cost the company too much(And then we rename them High Option again). When the company finally elminates the High Option Plan,the rates for the second best plan now costs what the High Option used to cost, yet the employee/employer gets lesser coverage. Savings are only good for a couple of years, then they disappear and then we start the cycle all over again. What is happening now? Companies are looking at eliminating coverage for family members, etc. etc. Insurance companies are making a bundle by covering less people, providing less coverage, but the rates will amount to what family coverage used to be. Their windfall will be unbelievable.

O.K., so I vented and got off the main topic a little!!! It's a catch 22 for the employer/employee no matter what cost savings measures an employer wants to implement.

SMace · March 2006

We are self-insured with stop-loss. Our savings are bottom line savings for the company

Margaret Morford · March 2006

I do think you need to get some legal advice, especially for your state.

With that said, some companies are not charging smokers more, but are rebating back to employees, that do not smoke, a portion of what they paid in premiums. Essentially smokers pay more, but this seems to get them around the discrimination rules.

Margaret Morford
theHRedge
615-371-8200
[email]mmorford@mleesmith.com[/email]
[url]http://www.thehredge.net[/url]

SMace · March 2006

>I do think you need to get some legal advice,
>especially for your state.
>
>With that said, some companies are not charging
>smokers more, but are rebating back to
>employees, that do not smoke, a portion of what
>they paid in premiums. Essentially smokers pay
>more, but this seems to get them around the
>discrimination rules.
>
>Margaret Morford
>theHRedge
>615-371-8200
>mmorford@mleesmith.com
>[url]http://www.thehredge.net[/url]

No, that is not what gets employers around the discrimination rules. Providing them with a reasonable accomodation gets you compliant with the rules.

Charging Smokers More

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