More and more employers are taking a straight-line approach to rising healthcare costs: They’re charging employees who smoke an extra “tobacco use fee.”
Plan sponsors have tiptoed around issuing workers penalties for unhealthy behaviors for years, fearing such penalties violated federal laws — namely the Health Insurance Portability and Accountability Act (HIPAA).
But the feds now appear to be letting the “smoking surcharge” slide.
In fact, the new health reform law will permit employers to charge smokers up to 50% more for health insurance beginning in 2014.
What’s changed (legally)?
Under HIPAA, plans that charge employees different out-of-pocket costs based on their “health status” could only do so if the plan first met five non-discrimination requirements.
And even then differences in expenses could only be established by offering rewards or incentives — not penalties — and the premium differential could not be worth more than 20% of the total cost of employee-only coverage.
But the Department of Heath and Human Services ruled that smoking is not a “health status” (like obesity) but rather a “behavior,” in a letter to John Banzhaf, a law professor at George Washington University. (The letter can be viewed here.)
This, according to Banzahf, opened the door to charging smokers more for coverage — and employers have been jumping on the bandwagon.
Forty-seven percent of nearly 600 large U.S. employers surveyed by Hewitt Associates revealed that they already use — or plan to use — financial penalties over the next five years for employees who engage in unhealthy behaviors.
What those companies said they’ll do:
- Increase premiums (81%)
- Increase deductibles (17%)
- Increase out-of-pocket costs (17%), and
- Target smokers (64%).
How much is too much?
Beyond health reform’s 50% rule, which takes effect in 2014, the feds have issued little guidance on how much more employers can charge smokers for health coverage today.
But Banzhaf argues that because smoking is a “behavior,” and therefore not protected under HIPAA, employers can charge smokers more without restrictions.
But taking such a stance may not be prudent. Why? Employers who do risk hurting morale if large surcharges make smokers feel alienated.
Solution: Follow HIPAA’s current 20% rule and don’t charge smokers more than 20% more for their coverage — at least to start.
Another good option: Ask your carrier how other companies are handling the issue.
For more info on smoker surcharges, click here.
