Tuesday, October 04, 2016

Why Tobacco Users Shouldn't Pay a Tobacco Surcharge

When you set up group health insurance plans, the option exists to separate out tobacco users from non tobacco users. This allows insurance companies to charge tobacco users higher premiums. But should tobacco users really pay more? I don't personally think so and that's what I want to talk about today.

It's Legal to Charge Tobacco Users More Even If They Don't Ever Go To The Doctor

First off, I want to talk about why tobacco users get singled out to pay higher premiums. That's because it's a legal way for insurance companies to charge higher premiums for some employees in your group. Since it's legal, you can bet that insurance companies want to do it.

It's often cloaked in the veil of some sort of "wellness" mission the employer has but it's basically just a way to get more premiums out of somebody.

Ironically though, you can't charge higher health insurance premiums for older employees. Nor more for females than for males. You also can't charge employees who actually have health conditions a surcharge because of their medical problems.

Those groups get subsidized by everybody else but the tobacco users do not.

Insurance Is Meant To Spread The Risk Across ALL Members Of The Group Not Just The Tobacco Users And Unhealthy People

Sometimes I think people forget that insurance is designed to spread risk across everyone in the group.

Not too long ago, I had an employee express disappointment that everyone got the same rate. He didn't use tobacco and didn't think it was fair that he didn't get to pay less. However, he completely overlooked the fact that he had high blood pressure and took medication for it. Shouldn't all the employees who don't have high blood pressure get to pay less in that case?

Of course, the answer is no, so why should smokers be any different.

Many times tobacco users don't even have any medical problems. This means they don't even use the health insurance they purchase but have to pay more than the employee who has had two heart attacks and a triple by pass surgery.

This doesn't make any sense to me.

A Tobacco Surcharge Creates Ill Will Toward You The Employer

When I enroll employees in benefits, employees aren't stupid. When they see a tobacco surcharge that means they will have to pay more even if they never go to the doctor, they look at their fellow employees.

Then they ask, why do I have to pay more than the employee who has diabetes or the employee who had breast cancer?

Last year I did an enrollment where the health insurance was set up so that employees who used tobacco paid $100 more per month than their non tobacco counterparts. If their spouse smoked, they also paid it. This meant some families paid $200 per month more than the non tobacco users.

Granted, these employees had a smoking cessation program available to them. They could enroll in that and get the tobacco surcharge waived in a couple of months.

But still, you are sending a clear message to those employees that creates resentment against you the employer.

It Encourages Lying To Avoid The Smoker Surcharge

Most employees that smoke will own up to it if they are everyday smokers. But the casual smokers who maybe only smoke every now and then don't consider themselves "smokers" even though they are.

You'd be surprised at the number of employees who say they don't smoke but really do. Of course, they aren't hardcore smokers. It's usually something they might do only when they go out for drinks or something.

It still counts though and they technically should pay the surcharge but you know what, they don't. That's not fair to the employees who are completely honest about it.

Shouldn't We Be Promoting Wellness? Isn't Tobacco Use Unhealthy?

Yes. You should be promoting wellness. And yes, tobacco use is unhealthy. I'm not advocating that smoking is great or anything. The only thing I am suggesting is that when it comes to spreading risk in your group, spread the risk across everybody like insurance risk is meant to spread.


Remember, that the tobacco surcharge is there for one purpose which is to collect more premiums. Theoretically it's there to offset the cost of the health problems the smokers and other tobacco users might have.

But in my experience, and while I don't have the scientific data to back it up, I've found that most of the tobacco users use the health insurance less than the non tobacco users who have medical problems.

And that's why I'm against the tobacco surcharge.

What do you think? Should employers charge a tobacco surcharge or not?

Let me know in the comments.

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Michael is a champion of guaranteed issue for employees in the workplace. He's been an insurance agent since 1992 and has worked with thousands of employees.