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40% of Employers to Charge Smokers More, But Not Enough More
Some 40% of large and medium-sized companies are expected to charge smokers as much as $2000 more annually for their health insurance, but this is a lot less than actuarial tables dictate or what the federal government permits
Lawyers are telling many companies that they are only permitted to increase smokers' premiums by a certain small percentage, or that enrollment in a tobacco cessation program by law provide an automatic waiver, even if the employee continues smoking. Many lawyers are also discouraging smaller employers from even considering such charges, telling them that it can only be done as part of a wellness program meeting various government regulations.
But none of this is correct, says public interest law professor John Banzhaf, who has obtained a private ruling permitting employers to charge smokers more without any percentage limitations, without waivers for those who just try to quit smoking, and without meeting the sometimes onerous and complex requirements to qualify as a wellness program. Moreover, he says, increases in employee premiums of more than $10,000 a year will be permitted in 2014 under the new health care legislation.
A recent survey says that the use of penalties -- primarily against smokers -- is expected to reach 40% of large and mid-sized companies by the end of 2012, up from 19% in 2011, and only 8% in 2009.
Another survey predicts that almost 50% will be doing it by 2016. The reasons for this accelerating increase are simple, says Prof. Banzhaf.
# Wal-Mart, which has begun imposing strict smoker surcharges, reports that tobacco users consume about 25% more health care services.
# Health care costs were skyrocketing even before the recent recession. Things are expected to get worse, with the weak economy deterring more older and less healthy employees from retiring, thereby preventing companies from hiring younger healthier workers with lower medical care costs.
# Simply providing assistance in quitting to current smokers, such as smoking-cessation programs, or even financial incentives for stopping, are not very efficient. In other words, many companies have found that the carrot approach isn't effective, and are increasingly turning to the stick.
# Moreover, the majority of workers who are nonsmokers object when smoking employees are given bonuses to quit, and any such financial incentives must necessarily be small, particularly in a tight economy. On the other hand, there is no limit on how much more smokers can be charged.
# Many polls show that growing majorities support the concept of charging smokers more, not only for health insurance, but also in higher cigarette taxes. Nonsmokers increasingly realize that they are being forced to pay most of the costs of smoking -- about $3 trillion over 10 years, more than twice what the Supercommittee was charged with saving, or as much as $12,000 annually for each smoking employee -- in the form of much higher taxes (to cover smoking-related costs under Medicare, Medicaid, veterans' and Indian benefits, etc.) and bloated health insurance premiums.
# We now recognize that, although it is difficult, most smokers can quit, especially if they have a sufficient incentive. That's why there are far more ex-smokers than current smokers.
# The overwhelming majority of smokers already want to quit, but often require a strong incentive -- something which is missing for many smokers who haven’t yet suffered a major health problem as a result. A stiff monetary penalty, just like a substantial increase in cigarette taxes, can often provide that added incentive necessary to help many smokers achieve their goal.
Current law applying to many medical insurance plans limits the percentage increase which may be charged for various health-related conditions, requires that the surcharges be part of a wellness program which meets a variety of legal requirements, and often mandates that those who participate but without success in a program (e.g., to lose weight) cannot be penalized.
But, as the government has ruled, smoking -- unlike obesity, which is classified as a "health status" (and sometimes as a "disease") -- is simply a "behavior" and not a health status or a disease, so it is not subject to many of the requirements which apply to obesity and other health-related factors.
Companies such as Home Depot, PepsiCo, Safeway, Lowe’s, General Mills, and Wal-Mart have adopted what some have called a “MORE STICK, LESS CARROT” approach to get workers to take more responsibility for their own well-being.
Interestingly, although both President Barack Obama and HHS Secretary Kathleen Sebelius both stressed --as essential to overall health care reform -- the need to require people to take personal responsibility for their health, smoker surcharges are one of the few rare examples of where this is actually happening.
Wal-Mart, for example, imposes a $2,000-a-year surcharge on some smokers, and more on others. Unlike with similar programs at other companies, smokers cannot avoid the surcharge simply by enrolling in a smoking-cessation program. The only way to avoid the surcharge is to get a formal attestation from a physician that it would be medically inadvisable or impossible to quit smoking.
"I suspect that very few doctors, even if they smoke, would be willing to put that type of recommendation in writing. To do so would not only hold them up to ridicule and possible condemnation from colleagues, but could provide the basis for a major medical malpractice action if a patient died or suffered a heart attack, stroke, or other major medical problem from his continued smoking,” says Banzhaf.
At a time when the average cost of an employer-provided family health plan is more than $15,000 -- 31% higher than only 5 years ago, and expected to climb 5-8% more in 2012 -- it's no wonder that both employers and individual workers are getting sick and tired of paying a premium of some 25% for each and every employee who smokes.
Some employers are going even further than smoker surcharges, and either giving strong preference in hiring to nonsmokers, or simply refusing to hire smokers. Cleveland Clinic, which employs about 40,000 people, has been able to hold its increase in health care costs to only 2% this year with a comprehensive wellness program and a policy of refusing to hire smokers.
In summary, suggests Banzhaf, requiring smoking workers to pay more of their fair share of the enormous additional costs their smoking creates, so that other employers are not burdened with these expenses, may be preferable to many people than companies which simply refuse to hire smokers -- although both are very effective techniques for slashing health care costs.
It's not unfair to charge smokers more if it's their own actions which are directly responsible for those charges. What is unfair is to force the great majority of workers to bear those costs in the form of lower salaries, less health insurance coverage, or even layoffs because the employer can't afford to hire more workers with the huge drain of smoker medical expenses, argues Banzhaf.
JOHN F. BANZHAF III, B.S.E.E., J.D., Sc.D.
Professor of Public Interest Law
George Washington University Law School,
FAMRI Dr. William Cahan Distinguished Professor,
Fellow, World Technology Network,
Founder, Action on Smoking and Health (ASH)
2000 H Street, NW, Suite S402
Washington, DC 20052, USA
(202) 994-7229 // (703) 527-8418
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John F. Banzhaf III is a Professor of Public Interest Law at George Washington University Law School [http://banzhaf.net/]