Up In Smoke

Today I want to pause and take a direct look at one small but highly significant piece of recently proposed ACA implementation: health insurance premium variance based on tobacco banding. You may recall that the ACA's much vaunted promise to end both pre-existing condition exclusions and individual underwriting of insurance risk in many health insurance markets was designed to streamline -- both procedurally and financially -- access to health insurance for Americans.

There are some exceptions to the take all comers approach, however.  In particular, it has always been contemplated that a certain amount of premium variance based on age and  on the use of tobacco products would be permitted.  Only recently, proposed rules on the insurance process known as banding have shown what is really meant by an acceptable amount of discrimination based on tobacco use. The ACA permits premiums to vary based on tobacco use by a factor of 1.5.  And the premium supports available to low income individuals are not available for the tobacco use premium band bump. 

What does this really mean for older low income tobacco users?

In a nutshell: quite a bit. The proposed approach on tobacco use banding allows health insurers considerable flexibility in determining how to band for tobacco use but the recently proposed rule contains one example of permissible tobacco use related banding that gave me pause.  Under the proposed rule, insurers could apply a different -- and considerably lower -- surcharge for tobacco use on younger smokers than on older smokers. How different? We are talking a tobacco use premium of, say, a few dollars a month for younger tobacco users and several hundred dollars a month for older tobacco users.

Several months ago, an interesting analysis by Rick Curtis and Ed Neuschler, projected that several hundred dollars of non-premium supported health insurance cost could knock a substantial number of older smokers into a very familiar kind of uninsurability known as unaffordability.   This means an older low income smoker seeking insured status might find an un-subsidized tobacco premium surcharge of perhaps $4,000 a year, unaffordable. (Of course, were you an older low income citizen intent on evading the individual mandate you could take up smoking and game yourself into the exceeds 8% of houshold income exemption for the individual mandate.)

All of this makes some actuarial sense.  Tobacco use has a long term fuse for its most expensive health effects.

All of this may not make the most public health sense, however.  If higher unsubsidized premiums are designed to discourage tobacco use, there is little doubt that shorter term tobacco users have a higher success rate at quitting.  Older smokers -- say a 57 year old male -- tend to be those with a pretty hard core addiction to nicotine, an addiction intensity not evenly distributed among the smoking population. There is recent evidence that some of  the damage from long term smoking is more enduring than previously thought, even after complete cessation.

And the real irony is that Medicare has no tobacco use premium banding. Smoke your way to 65, for most Americans, is a perverse incentive indeed.