ACA's controversial tobacco surcharge - what you need to know

Smokers pay higher premiums under the ACA's tobacco surcharge
The ACA allows higher premiums for smokers, but some states have banned tobacco surcharges. Odilon Dimier/PhotoAlto Agency RF Collections/Getty Images

Tobacco users who purchase their own health insurance have long been used to the idea of paying more for their coverage than their smoke-free peers. Prior to 2014, some carriers would even refuse coverage to smokers, particularly if they had additional pre-existing conditions.

The Affordable Care Act eliminated all forms of medical underwriting in the individual health insurance market, so pre-existing conditions no longer result in higher rates or declined applications.

But tobacco use is still factored into premiums in most states. In fact, it's one of just three factors that carriers can use now to set rates, along with age and zipcode.

This provision was included in the ACA in an effort to require tobacco users to pay a heavier share of their higher expected health costs, but it's been criticized by groups like the American Lung Association and the American Cancer Society as bad policy that hinders smokers' access to healthcare and tobacco cessation programs.

Tobacco surcharge: up to 50%

The ACA allows carriers to increase premiums by up to 50% for tobacco users. HHS defines tobacco use as the use of a tobacco product at least four times per week within the past six months. With that in mind, it's important to let the exchange or your carrier know if you quit smoking at least six months ago, so that they can adjust your premium for 2016.

Some states mandate lower (or no) surcharge

Although the ACA allows up to a 50% rate increase for tobacco use, states can implement smaller rate increases or forbid tobacco rating altogether.

Ten states and the District of Columbia have opted to restrict how much carriers can increase premiums for tobacco use.

Three states have mandated that the tobacco surcharge must be less than 50%: Arkansas (20%), Colorado (15%) and Kentucky (40%).

Tobacco surcharges have been banned altogether in the District of Columbia and six other states (California, Massachusetts, New Jersey, New York, Rhode Island, and Vermont).

And in Connecticut, tobacco surcharges are banned for plans sold through the exchange, but they're allowed for off-exchange plans.

Some carriers don't impose surcharge

In the other 41 states, carriers are free to increase premiums by up to 50% for tobacco use, but not all carriers do so. For example, Kansas allows a tobacco surcharge of up to 50%, but the carriers in the Kansas exchange impose surcharges ranging from 0% to 44%.

Tobacco use is self-reported on enrollment forms, and there's certainly concern that some people might not be honest in their reporting. The ACA does not allow carriers to rescind coverage if an applicant is dishonest about tobacco use, but they do allow carriers to collect the tobacco surcharge dating back to the policy effective date if the carrier finds out that an insured is a tobacco user but didn't report it on the application.

Premium subsidies don't cover tobacco surcharge

The ACA's premium subsidies cover an average of $270/month in premiums for almost 84% of exchange enrollees in 2015. But the tobacco surcharge isn't taken into consideration when premium subsidies are calculated. The subsidy is based on the cost of the local second-lowest-priced Silver plan and the enrollee's income - but the tobacco surcharge is added on separately, and the premium subsidies don't offset it at all.

Particularly for older tobacco users - who are most in need of health insurance - this can make health insurance unaffordable. The American Cancer Society has spoken out about the conundrum that some older smokers face: lie about their smoking in order to obtain affordable coverage (but risk the possibility of having to pay back the tobacco surcharge if they're caught), or go uninsured because the cost of coverage with the surcharge is beyond their means.

The problem is particularly pronounced when we consider that smokers tend to have lower incomes than their non-smoking peers. 

Tobacco cessation a covered benefit on health plans

Under the ACA, all new individual and small group plans must include coverage for essential health benefits with no dollar limits on annual or lifetime benefits.

Preventive care is one of the essential health benefits, and insureds receive preventive care for free, even if they haven't met their deductible yet.

Tobacco cessation treatments are included as preventive care on all new health plans under the ACA. So for smokers who can afford to pay the surcharge (or who qualify for Medicaid or are able to get a health plan without a surcharge), tobacco cessation treatment is more available than ever as a result of the ACA.

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