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How Obamacare premiums penalize smokers

The law aims to discourage tobacco use with a surcharge. Critics say that will fall most heavily on the people who can least afford it.

By MSN Smart Spending editor Aug 20, 2013 11:52AM
This post comes from Jay MacDonald at partner site

Bankrate logoSmokers could face sticker shock when shopping for individual or small-group health insurance in the new state health marketplaces scheduled to open this fall, due to a controversial clause in the Affordable Care Act, or ACA, that allows insurers to penalize smokers by continuing to charge higher rates to tobacco users.

Man smoking (© Steve Mason/Photodisc Blue/Getty Images)President Barack Obama's landmark health insurance reform legislation ends decades of advantageous underwriting practices by barring insurers from, among other things, limiting lifetime benefits and denying coverage due to pre-existing conditions.

But the law widely known as Obamacare also aims to discourage tobacco use, the nation's largest preventable health hazard, which kills some 443,000 Americans each year at an annual cost to the nation of $193 billion in medical care and lost productivity, according to the Centers for Disease Control and Prevention.

How do you combat tobacco use without discriminating against smokers? The ACA attempts this balancing act by allowing insurers to continue their practice of charging tobacco users a so-called "smoker surcharge" but limiting it to 50% above the rates they charge customers who do not use tobacco, beginning in 2014.

Groups question smoker surcharge
"Smoking and tobacco use are the only pre-existing conditions that the Affordable Care Act still allows insurers to discriminate against," says Erika Sward, assistant vice president of national advocacy at the American Lung Association.

Combine the smoker surcharge with another health reform rule that prohibits low-income applicants from using federal tax subsidies to offset the surcharge, and consumer advocates fear older smokers could be priced out of the market.

"While not all health plans charge higher premiums for smokers, we are concerned that, if they do, people who may really need access to health care could be left uninsured because they can't afford coverage," says Gerry Smolka, senior strategic policy adviser for the AARP Public Policy Institute.

The American Lung Association also opposes penalizing smokers for a different reason. "There is absolutely no evidence that surcharges are effective in encouraging smokers to quit," explains Sward.

Critics say surcharge hits the poor
According to the nonprofit Kaiser Family Foundation, the smoker slam would work like this: A 50-year-old, low-income smoker (earning $15,000 for the purposes of this example) would be quoted an annual premium of about $8,100, including a nearly $2,700 tobacco surcharge. The federal low-income subsidy would bring her premium down to about $3,000. But if she didn't smoke, her premium would be just $300. Subsidies can't make the surcharge go away.

Advocates fear she would remain uninsured under this scenario and choose to face the tax penalty in 2014 for failing to carry coverage as required under Obamacare's "individual mandate." The penalty for individuals will be $95 next year, and it will rise to $695 by 2016.

The larger public policy concern is that the surcharge that penalizes smokers could disproportionately put health insurance out of reach for a key group that health reform aims to help: the millions of poor Americans who currently lack coverage.

"There's that sense that any variation in premium constitutes a kind of income discrimination because it is lower-income people and nonwhite people who are most likely to smoke," says Deborah Chollet, a senior fellow at Mathematica Policy Research in Washington, D.C.
Administration says law helps smokers

A representative for the federal Centers for Medicare & Medicaid Services, or CMS, says that, despite the media kerfuffle, Obamacare benefits smokers.

"Before the ACA, insurance companies could charge far more than 50% more for smokers or simply deny them coverage altogether because they smoke. The ACA puts limits on how much more smokers can be charged," says the representative, who spoke under condition of anonymity.

CMS notes that tobacco users can avoid 50% smoker surcharges in two ways: by enrolling in a tobacco-cessation program; or through state-adopted insurance standards that set lower limits on surcharges or prohibit any premium differences between smokers and nonsmokers. As of June, three states have adopted lower limits, and six states plus the District of Columbia have prohibited any price rating based on tobacco use. The latter group includes the nation's most populous state, California.

"The concern in California was that smoking is so linked to poverty and chronic disease that insurers were going to use it basically as a proxy for rating by disease status," says Dylan Roby, an assistant professor of health policy and management at UCLA's Fielding School of Public Health.

Glitch crimps smoker penalty, for now

Some smokers are temporarily getting something of a reprieve from the threat of steep premiums. In June, the Obama administration told insurers that a glitch in health insurance reform would hold down premiums for older smokers.

Chollet says that even when things are working properly, market forces alone will likely keep Obamacare's smoker surcharges well below the 50% cap.

"The average surcharge now is around 15%, and for a simple reason: They don't necessarily want the business to go away," Chollet says. "I don't think we're going to see 50%. States allow that now, and you don't see it happen."

Rick Curtis, the president of the Institute for Health Policy Solutions, a nonpartisan research group, agrees that Obamacare is unlikely to penalize smokers too harshly.

"Long story short, smokers generally will not see a rate increase compared to current or previous years' individual insurance premiums," he says. "Individuals who are smokers will . . . generally have improved access and more affordable premiums under ACA restrictions."

More from

Aug 20, 2013 12:36PM
An article on CNN just yesterday stated that obesity-related illnesses kill 1 in 5 Americans between the ages of 40 and 85.  That's a lot more than smoking-related deaths.
Aug 20, 2013 1:34PM

Unfortunately Obummer who is a smoker won't be penalized becasue he doesn't have to obey any of the madates in this worthless insurance plan.

Aug 20, 2013 1:38PM







Obama !


Aug 20, 2013 12:40PM

Quit recently after a heart attack, so it's no longer an issue for me. I would not recommend this method of quitting, as it is expensive and hurts like hell. 


As for the example shown for the 50 year old smoker, here's my thoughts on that one. I don't see someone making 15,000 a year choking up 3,000 for insurance. They will just take their chances and if they are hit with a major medical bill, good luck collecting the debt.


Aug 20, 2013 12:58PM
Fat costs more than twice in anual heath care than that of disease from tobacco!!!  What about fat being charged more!????  No because that is ok.  To eat like a beast and get, diabeties, Pulmanary disease, ect.ect.ect..  All bsbsbs..  Like pot that can not hurt you .  You can not od from pot, it costs nothing in medical expenses but drinking now that is safe.  Wow..  We are a country of complete idiots and the top of the food chain is the idiot capital..  F em all and to all of you that don't agree but I know those are just the people that watch the Kardashians..  Lovely aint it..
Aug 20, 2013 1:45PM
Is Obama going to pay the surcharge?  I've seen him suck down a few smokes in his day.
Aug 20, 2013 1:38PM

proofs that Oboma, Nancy and old Harry are communists and want control of people's lives. They do not give a damn about anyone except themselves and their own arrogance. This is no longer a free country. Stalin and Hitler lost but Oboma won!!!!

Aug 20, 2013 1:49PM
bend over hear comes obamacare.  since i will not be joining in to the so called law, I wont have to worry about the costs.. they can cram their law up their A$$,  what a place this free country has become recently  .  
Aug 20, 2013 1:29PM

"Obama Blows Half of Obamacare Deadlines"


I hope people head to the WH next year and protest Obamacare by throwing their 'Affordable Care' over the fence by the thousands if not millions.

Aug 20, 2013 1:27PM
I work in healthcare, there is no doubt smoking causes a lot of healthcare problems.  but what about obesity?  Diabetes with it's resultant limb loss, going blind, becoming crippled and too heavy to get joint replacements, then there is heart disease, strokes,  arthritis, the list goes on.Strokes and heart attacks in the 40-50 year old population is getting common now, I'm seeing way too many.   A little overweight is fine and good, but cmon, "fat" is NOT beautiful, not for your health.  If you are going to penalize smokers, you should penalize the obese.  I see so many peple pointing to the Wonderful Taiwan Healthcare system as to how we should go.  Lol, they really penalize the overweight, I say go for it. But I know, it penalizes the Poor.  How we have so many poor smoking/obese people I don't know, I couldn't afford to smoke even if I wanted to. But either way, the taxpayers will foot the bill for anyone who either gets subsidized care or can't afford to buy insurance.
Aug 20, 2013 1:39PM
I would think the LARGEST preventable health disease would be drinking, since there are craploads more drinkers than smokers. But hey, I'm used to being the under dog as a smoker. So I propose that I will not get insurance, since I am lacking the Taxation without Representation. 
Aug 20, 2013 2:02PM

If you are earning $15,000/year and wasting money on cigarettes, I don't feel sorry for you. In fact, if your income is sufficiently low you require any type of government (aka TAXPAYER) subsidy to live, yet you still find money to buy smokes, dine out, drink alcohol, gamble, etc, you pretty much disgust me. If you are living even partially on MY tax dollars, you should be respectful enough to not waste it away on desires and vices but rather focus purely on your NEEDS so you can eventually quit living on my tax dollars.


That said, I don't support this provision anymore than I support tobaco taxes. As much as I hate smoking, the government does not have a right to create punitive damages to try and dictate how one lives. It started with tobaco, now people want to tax soda, fast food, candy, etc. This is supposed to be a free country. As long as I am not breaking the law, I shouldn't be penalized by the government. Land of the FREE people. We have gone way too far from that point.

Aug 20, 2013 1:40PM
Boy you are going to love the barry2xer care, first it is smoking, then it will be soda, than McD's food. Every day I wake up and see another story how you dopes that voted for this guy 2x are going to get hammered and it makes this old guy so happy!
Aug 20, 2013 1:02PM

So isnt this a vicious circle.


The person smokes and pays excess of $2.00 per pack tax to smoke.


His premium is higher, but thats OK because Obama is going to give them free healthcare.


So the goverment pays for this guy to smoke cigarettes, then gets a two dollar tax rebate back.


Then the goverment turns around and gives him the free healthcare insurance.


Looks like the only winner here is  the insurance company.


The tax payer is the big loser.


Go Commarade OBAMA, you may still detsroy this country in 3 years.

Aug 20, 2013 1:39PM

Man, he wants our guns AND cigarettes.


"You can pry my bottle of Tequila from my dead, cold hands"....

Aug 20, 2013 1:41PM
This law if is blatantly discriminatory. Nicotine addiction is a medical diagnosis. Why are smokers being singled out?. What about Alcoholism, Obesity, and other addictions. If you chew tobacco are you exempt from the "smokers premium"? Is it okay if you inject Heroin on a regular basis so long as you don't smoke?
Aug 20, 2013 1:25PM
So what is the deal? I will be charged more for smoking or using tobacco unless I am old and I can smoke weed but I can't smoke tobacco? I guess this Obama-Care stuff really is dumbo-care. How will they know who uses tobacco? Do we need a tobacco police to make sure that those not paying the surcharge are not sneeking a bit of tobacco?
Aug 20, 2013 12:57PM
A better story would be "How Obamacare will burn Non-smokers due to Smokers"... If they don't have the money to pay they will be subsidized by the tax payer......... bottom line is you will pay for deadbeat smokers. Tax paying smokers will pay their own way.
Aug 20, 2013 12:37PM

"Critics say surcharge hits the poor", The poor  can afford smokes but  receive food stamps to eat? I wonder how much food they can purchase for the cost of a pack of cigs? A carton?


"Administration says law helps smokers
A representative for the federal Centers for Medicare & Medicaid Services, or CMS, says that, despite the media kerfuffle, Obamacare benefits smokers."


This more likely the picture. Obdumbo wouldn't want to anger his voters.

Aug 20, 2013 2:11PM

This is where it starts. With the smokers.


Then it will be the drinkers.


Then the obese.


Then those with pre-existing conditions.


How long will it take before it gets to YOU?

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