Monday, January 24, 2011

Health Insurance for Smokers

It is commonly accepted opinion that smoking is unhealthy and that smokers are a greater risk to health insurance companies than non-smokers are. The Surgeon General's report in 1964, Smoking and Health made the public aware of the dangers of smoking and of the relationship between smoking, medical costs and mortality. The issue of health insurance for smokers and tobacco users has created some controversy over the years.

For decades, statistics have been showing increased health care costs for smokers. When comparing medical records of smokers with non-smokers, researchers typically find that smokers have much higher hospital admission rates than non-smokers, stay quite a bit longer while in the hospital, and have outpatient costs that are much higher. There is a significant difference in costs for health care and this has implications for the cost of health insurance for tobacco users. It is not surprising to see these costs ultimately reflected in health insurance premiums as well.

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For many years it has been customary and generally accepted practice to charge smokers more than nonsmokers for life insurance (and in some cases for automobile insurance), just as it is to charge people who drive dangerously more for automobile insurance.  However, until about 1984, it was unheard of to charge smokers more than nonsmokers (or nonsmokers less than smokers) for health insurance.

The idea of using differential health insurance rates -- e.g. charging smokers and nonsmokers different rates -- really begin in 1984 when the National Association of Insurance Commissioners (NAIC, the organization made up of state insurance commissioners) noted that some 60%-80% of all health insurance and medical care costs were directly caused by factors over which patients had control: e.g., smoking, overeating, insufficient exercise, alcohol abuse, hard drug abuse, unsafe sex practices, failure to use a seatbelt, etc.

They asked whether it was therefore time to abandon the practice - which went back to the birth of the pre-paid health insurance concept - of charging everyone the same rate.  This practice was adopted because, at that time, most of the causes of health care expenses were things over which patients had little control (e.g., bacteria, viruses, etc.), and therefore it seemed reasonable to charge the same rates to everyone.

But, since by 1984 most health care costs grew directly out of personal health habits, the NAIC wondered if it would be fair, possible, effective, and legal (i.e., not unlawful discrimination) to charge different rates for people who engaged in a variety of unhealthy behaviors. NAIC review the approach based on three criteria under which such differential health insurance rates based upon various risk factors (e.g., activities) such as smoking would be clearly proper and clearly legal:
  1. The risk factor must cause substantially increased health care costs
  2. The risk factor must be easily and objectively verifiable
  3. The risk factor must be subject to change by the insured and, if changed, result in lower health care costs.

Based on the results, NAIC recommended higher insurance rates based upon only three factors; two of which were smoking and obesity.

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American Smokers Pay Double

A recent study in the New England Journal of Medicine reveals that life and health insurance companies in the U.S., Canada and Great Britain invest heavily in tobacco companies. The study found that the American insurance company Prudential Financial, Inc. has $264.3 million invested in U.S. cigarette makers, including Philip Morris and R.J. Reynolds. The Canadian company Sun Life Financial, Inc., which sells life, health and disability insurance, owns over $1 billion worth of stock in tobacco interests, including $890 million in Philip Morris. Prudential Plc, which sells health and disability coverage, has $1.38 billion invested in two tobacco companies, including British American Tobacco.

We should admit that it may make sense for life insurance companies to charge higher premiums to smokers and tobacco chewers being there is a higher probability of death from the myriad of diseases caused by tobacco, but the surprising fact is that the insurance company make their extra cash. The higher premiums that the life and health insurance companies collect from smokers is being invested back into tobacco companies, thus, the insurance companies are making a double profit from smokers.

It's not new news that insurance companies have been profiting from smokers through selling them high cost health and life insurance and then making money at the same time through cigarette sales. Smokers are even charged more by some auto insurers for car coverage.  For more than ten years public health advocates have asked the insurance companies to divest their insurance holdings in the tobacco industry but as long as the tobacco dividends pay out and insurance companies profit from smokers there isn't much of a chance the insurance companies will stop.  So, smokers will continue to pay the premium.

Smokers are getting mixed messages from their life insurance companies and even often get overcharged by the insurance companies in relation to the cost of the risk. In other cases the insurance companies flat out refuse to cover smokers. Either way it looks like smokers are always paying the premiums.

Employers Pressure

A growing number of private and public employers are requiring employees who use tobacco to pay higher premiums, hoping that will motivate more of them to stop smoking and lower health care costs for the companies and their workers. The companies imposing the surcharges are mostly self-insured, with employers and employees sharing the insurance premium costs.
Other companies or insurance plans have offered workers financial rewards for exercising, dieting or other healthy behaviors. Some have started onsite fitness programs and are paying for gym memberships.

The Centers for Disease Control and Prevention estimates $92 billion in lost wages annually in the United States from smokers who die prematurely. In addition, the economic cost of smoking includes $75.5 billion per year in direct health care costs.

In an effort to reduce the number of smokers in the United States, starting in 2011, all health insurance companies will provide coverage for smoking-cessation programs for Federal Employees under the new health care law. 

Reporting Smoking for Health Insurance

It is not recommended for the prospective clients to hide the fact of smoking on the health insurance application as this would undoubtedly hurt you if you ended up with a smoking related illness during the first two years as this is the contestability period with most health insurance companies as the insurance companies could easily get away with denying your claims.  But if you tell the truth, your premium is likely to be 15-20% higher per month as a smoker.

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