Politics

Health Insurance Companies: Charge Smokers More To Cut Costs

Contrary To Study, Workplace Wellness Programs Can Save Billions; Tiny “Carrots” Don’t Work, But Health Insurance Companies Charging Smokers More Slashes Everyone’s Costs

health insurance companies
Free-Photos / Pixabay

WASHINGTON, D.C.  (April 18, 2019) – A new study reportedly shows that conventional workplace wellness programs do not cut costs, reduce absenteeism, or improve employees’ health, but programs requiring smokers to shoulder more of the unnecessary medical costs they impose on others can slash costs and save hundreds of billions of dollars, says public interest law professor John Banzhaf who helped develop and popularize them.

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The wellness programs in the Journal of the American Medical Association [JAMA] study relied primarily upon small incentives which employees received for taking courses on various health topics, whether or not they actually modified their own behaviors to become healthier.

But such positive incentive - "carrot" rather than "stick" - programs have major limitations, says Banzhaf, who helped persuade the National Association of Insurance Commissioners [NAIC] to recommend charging smokers more for their health insurance, and to recommend that approach to insurance commissioners and health insurance companies in various states.

According to the American Lung Association, smoking costs the U.S. economy over $332 billion in direct health care costs and lost productivity every year, and a law suit in which Banzhaf participated proved that a typical smoking employee costs his employer over $12,000 a year in 2019 dollars - costs which are now largely borne by the great majority of taxpayers (for medical costs under Medicare, Medicaid, and other programs) and workers (in the form of fewer benefits or lower salaries) who do not smoke.

The approach of trying to get smokers to quit by offering a small monetary incentive - the "carrots" in the JAMA study averaged only $250 - is obviously ineffective, as the JAMA study and many others recognized, but offering them large enough sums to motivate major lifestyle changes such as quitting would be prohibitively expensive, and also arguably unfair to the great majority of employees who don't smoke and would not therefore receive anything.

A very different approach called "differential health insurance premiums" [DHIP] was pioneered by Banzhaf, who persuaded the NAIC to adopt it in 1986, and to recommend the approach to insurance commissioners and health insurance companies in various states.  He also helped to persuade Congress to include it under Obamacare in the form of 50% surcharge on smokers.

Under this system, people who engage in activities such as smoking, which are highly likely to cause serious and expensive medical problems such as lung cancer, heart attacks, strokes, etc., are required to pay more for their health insurance than people who don't smoke.

The higher cost is not necessarily as a punishment or a deterrent, but simply to cover the hugely inflated medical costs their dangerous actions generate, and which would otherwise therefore have to be paid for by the overwhelming majority of taxpayers and workers who wisely choose not to smoke.

Smokers have long been charged more for their life insurance because of the deadly dangers their activity creates - with almost half of all smokers dying as a result of using tobacco.  In some cases, smokers have also been charged a surcharge for home insurance since the majority of home fire deaths are caused by smoking, and even for automobile insurance because smokers have a higher rate of accidents than nonsmoking drivers.

The costs of smoking are enormous, and adopting a DHIP or smoker surcharge program can slash those costs for everyone, because imposing an additional charge for tobacco use helps smokers do what most already wish to do: quit.  Under DHIP, the additional costs are borne by those who cause them - smokers - and the great majority of taxpayers are not forced to pay for them through higher premiums.

Health insurance companies forcing smokers to pay more of their fair share of the huge costs their habit imposes on the nation's health care system is fairer than forcing the overwhelming majority of taxpayers who are not smokers to shoulder these costs, says Banzhaf.

It is also much fairer and more humane to require them to pay for the cancer and other diseases their smoking causes now, when they can still quit and thereby largely avoid the deadly disease and the entire smoker surcharge, than denying them coverage after their deadly lung cancer [a pre-existing condition] has been detected and it is too late - for example, if protections for pre-existing conditions were eliminated.

Such DHIP plans would impose, for the first time, widespread personal responsibility for individual health-related decisions, which is something both Republicans and Democrats insisted was necessary to slow ever escalating health-care costs, rather than the ACA approach which largely simply shifts these huge costs from one population group to others.

In other words, without DHIP, paying our ever escalating health care costs in a zero-sum game under which the costs are largely shifted to nonsmokers.  With DHIP, the number of smokers - and therefore the costs of what would otherwise become pre-existing conditions such as lung cancer, heart  attacks, and strokes - are substantially reduced, and virtually everyone wins.

We already know from many studies that even small incremental increases in the cost of being a smoker - e.g., small hikes in the per-pack tax on cigarettes - clearly have a significant impact on helping the overwhelming majority of smokers who already want to quit to do so, notes Banzhaf.

Thus it is reasonable to believe that a multi-thousand-dollar surcharge on yearly insurance premiums from Health Insurance Companies, even if broken up into monthly or bi-monthly payments, would have an even bigger impact - especially since smokers will see the figure all at once, rather than spread out over time as they do for a typical one-pack or two-pack a day smoker and a higher cigarette tax.

Indeed, the Wall Street Journal and the British Medical Journal have reported that imposing a smoker surcharge can slash smoking rates among employees by 50%.

So, summarizes Banzhaf, wellness programs of the type studied in the JAMA report, which depend on small incentive payments and do not require actual changes in behavior, seem to be ineffective in cutting costs, reducing absenteeism, or improving employees' health.

But wellness programs which require those who engage in unhealthy life-endangering activities such as smoking to pay more of their fair share of the costs they now impose on others have been shown to slash costs by persuading many to quit to avoid the surcharge, or shifting the cost to those responsible.

JOHN F. BANZHAF III, B.S.E.E., J.D., Sc.D.

http://banzhaf.net/ jbanzhaf3ATgmail.com  @profbanzhaf