Cost Shifting for Smoking

Addiction and Substance Abuse

Author: Public Interest Law Prof John Banzhaf
Published: 2010/06/03
Contents: Summary - Introduction - Main - Related

Synopsis: Rewards for Weight Loss Fail But Cost Shifting Works Very Well For Smoking.


Rewards for Weight Loss Fail, But Cost Shifting Works Very Well For Smoking.

Main Digest

A new report shows that even significant financial incentives offered by companies trying to save money by getting employees to lose weight are largely ineffective as well as quite costly, but shifting the cost of smoking is obviously effective and costs nothing, says public interest law professor John Banzhaf, who both developed and obtained federal approval for so-called differential health insurance plans which make smokers and the obese pay more for their health insurance.

Estimates are that each smoking employee can cost his employer at least $10,000 more each year in increased costs for medical care, disability, time lost from work, and other factors - money which is not available to provide better health insurance for the overwhelming majority of workers who do not smoke.

Requiring smokers to pay even a modest portion of the costs they now impose on their employer - and indirectly on fellow employees who don't smoke - would save money for the company and make additional funds available to better compensate other workers, even if the higher costs for health insurance didn't encourage any smokers to quit, argues Banzhaf.

But there is very strong evidence the increasing the costs of smoking provides a very powerful incentive for smokers to quit, with huge resulting savings, says Banzhaf, noting that smoking costs the American economy almost $200 billion a year, most of it paid by nonsmokers in the form of higher taxes and inflated health insurance costs.

"Today over 60% of major companies already charge smokers more than nonsmokers, and far more would probably do so if they realized that two federal rulings I obtained make it perfectly legal to do so without any percentage limitations, and without requiring the establishment of a so-called 'wellness plan.' In contrast, while the obese may be charged more, it can only be as part of a wellness plan which meets certain requirements."

The same is true under the newly-passed health reform legislation. It permits charging smokers up to 50% more for their health insurance than nonsmokers, and does not require the establishment of a wellness plan. In sharp contrast, higher charges for obesity and other wellness factors must be lower, and can only by imposed as part of an overall wellness program which meets certain requirements.

Almost a dozen states, many in the deep south where tobacco is a major crop, are already requiring smokers to pay more for the health insurance as a way of saving money as well as reducing overall health care costs, says Banzhaf, Executive Director of Action on Smoking and Health (ASH), the organization which originally proposed the idea of imposing personal responsibility of smokers by forcing them to pay more of the costs of their medical care.

For example:

West Virginia first included such a feature in part several years ago.

Kentucky in late 2004 created a smoker surcharge of $15/month for individuals and $30/month for family coverage.

Alabama in December 2004 authorized a smoker surcharge which is now $22/month.

In Georgia, more than 54,000 people covered by the insurance plan for state employees are paying an extra $40 per month because they smoke or use tobacco.

Indiana added a non-smoker rate incentive in 2006. For 2007, nonsmokers save up to $500/year on annual deductibles.

Kansas has a smoker surcharge authorized in 2008.

Missouri law generally provides that public and private employers may provide health insurance at a reduced premium rate and reduced deductible level for employees who do not smoke or use tobacco products.

South Carlina imposes a $25 monthly surcharge for state public employees and their family members who smoke or chew tobacco, effective 2010.

South Dakota has a smoker surcharge authorized in 2008.

In North Carolina, smokers pay 30% of claims, whereas nonsmokers pay only 20%.

"Requiring smokers to pay more for their health insurance imposes personal responsibility, is fairer because otherwise the enormous costs of smoking must be borne by nonsmokers, and it is one of the most powerful tools for helping the great majority of smokers who already want to quit to do so," says Banzhaf.

Professor of Public Interest Law at GWU,
FAMRI Dr. William Cahan Distinguished Professor,
FELLOW, World Technology Network, and
Executive Director and Chief Counsel
Action on Smoking and Health (ASH)
America's First Anti-smoking Organization
2013 H Street, NW
Washington, DC 20006, USA
(202) 659-4310 // (703) 527-8418

Action on Smoking and Health (ASH), America's first anti-smoking and nonsmokers' rights organization, serves as the legal action arm of the anti-smoking community. It is supported by tax-deductible contributions.

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