The Affordable Care Act brought dramatic changes to the individual and small group health insurance premiums still, the use of tobacco by a person can affect the price one pays for the health coverage. Though insurance companies no longer base health insurance premium depending upon applicant’s medical history and they are not even allowed to reject an application based on their pre-existing conditions or based on their health history, but ACA allows health insurance companies to base premiums depending on factors like age, family size, geographic location, as well as tobacco use.
Factors affecting Health Insurance Premium Cost
Geographic Location – The costs of health insurance premiums are not the same in every zip code, and vary from one area to another.
Age – The health insurance premiums are based on an individual’s age, as older people are charged higher premiums compared to younger people. The health insurance premiums are low for people under the age of 21, and there is a cap of three times the rates that apply to a 21-year old. New York and Vermont are the two states where health insurance premiums are not based on age.
Family Size – The health insurance premiums of a family is determined based on every person in the family. Thus, a family of five will pay a higher monthly premium compared to a family of three. It is important to know that premiums are added for up to three children under the age of 21, so a family having five children under the age of 21 will pay the same premium as a family having three children under the age of 21-year.
Tobacco Use – People who use tobacco can be charged up to 50% more than the people who don’t use tobacco. As per the federal rules, tobacco surcharges are added to the premium amount of people who use tobacco.
Federal Rules that Apply to Tobacco Surcharges
Despite ACA lawmaker’s strong feeling that an individual’s health condition should not be taken into consideration when setting the health insurance premiums, still they allowed health insurers to charge higher premiums from the tobacco users. This decision of the ACA lawmakers turned out to be controversial, as some people believed that it is fair to charge higher premiums from tobacco users considering the adverse effect caused by the tobacco to a person’s health and the additional cost incurred upon tobacco-related health problems. However, organizations like the American Cancer Society and the American Lung Association believe that higher health insurance premiums for tobacco users make health coverage less accessible to people using tobacco. If people avoid health insurance simply because they can’t afford it, then they will also not able to access the coverage for the free tobacco cessation that is included with ACA-compliant health plans. These people are also less likely to receive timely medical treatment at the time when they will need it.
Though the Affordable Care Act has included a provision to allow insurers to charge higher premiums from tobacco users but has not specified what constitutes tobacco use. However, the Centers for Medicare and Medicaid Services has issued a subsequent rule that defines tobacco use as the use of any tobacco product within the last six months with a frequency of at least four times per week. The tobacco products that are counted include traditional cigarettes, cigars, chewing tobacco, e-cigarettes, vaping, and pipe smoking. Albeit, the use of tobacco for religious or ceremonial purposes are excluded from the rule.
Higher Premiums Amount for Tobacco Users
The Affordable care Act allows health insurers to charge a 1.5-to-1 ratio for tobacco use. This means that health insurers can charge individual and small group tobacco users up to 50% more than non-tobacco users. It is vital to note individuals cannot use their premium subsidies to cover the tobacco surcharge that is generally used by the majority of the enrollees to reduce their monthly premiums. Tobacco products are mostly used by lower-income Americans than higher-income Americans.
Low and modest-income people buying health insurance may qualify for premium subsidies that cover the majority or even all of their health insurance premiums. However, it is the case only if they don’t use tobacco but if they do use tobacco then the tobacco surcharge may result in unaffordable health insurance premiums for these people.
The nationwide average pre-subsidy premium in 2020 is about $576 per month for health plans sold in the exchange. It is witnessed that among all the exchange enrollees, 86% of people qualify for premium subsidies that amount to an average of nearly $492 per month. Albeit if a person with an average premium is subjected to a 50% tobacco surcharge, then their monthly premium would increase to $864 per month, and their premium subsidy would not change. Modification in the tobacco surcharge has been prohibited in some of the states.
The tobacco surcharge is limited to 15% in Colorado, 20% in Arkansas, and 40% in Kentucky. And in states like California, Rhode Island, Vermont, the District of Columbia, Massachusetts, New York, and New Jersey are not allowed to charge higher premiums from tobacco users. Tobacco surcharge has also been prohibited in Connecticut but only for plans that are sold through the state’s health insurance exchange.
Thus, people who use tobacco are advised to not just avoid health insurance because many health insurers have implemented smaller surcharges or some have also sip them altogether. Thus, the actual monthly premium paid by the tobacco users will depend upon the health insurance company they choose and the area in which they are living. In some of the circumstances, there may not be any surcharge for tobacco users.
Tobacco Surcharge for Employer-Sponsored Coverage
Tobacco surcharge may also be incorporated in the employer-sponsored health plans that can increase the standard premium by up to 50% unless a state has implemented a lower tobacco surcharge. However, the employers imposing a tobacco surcharge are also supposed to offer a tobacco cessation program. The employer can apply the tobacco surcharge only if the employees do not participate in the tobacco cessation program. A few years back it was discovered by a Health Affairs analysis that more than 16% of the small employers were using tobacco surcharge, and about half of them were not offering a tobacco cessation program.
The prevalence of tobacco surcharge among small employers has significantly dropped mainly because the Department of Labor has become strict in enforcing provisions according to which tobacco cessation programs should be offered in conjunction with tobacco surcharges. This allows employees to avoid the surcharge by participating in the cessation program. Thus, it can be said that employers can charge higher premiums from employees using tobacco but they also have to offer a tobacco cessation program, so that employees have the option to avoid the surcharge by participating in the tobacco cessation program.