Smokers Would Pay More For Insurance, Non-Smokers Less, if Md. Allows Tobacco-Use Surcharge

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Low-income Marylanders could see the greatest impact if the legislature updates the state health exchange’s online platform to allow insurance carriers to add surcharges to tobacco users’ premiums, state insurance officials said Tuesday.

“There is no question that people who are at the lower levels of income, people who have other challenges that they’re dealing with, people who have oftentimes been least able to stop smoking, are the people who will have the greatest impact with respect to a surcharge because that [money] means more to them,” Maryland Insurance Administration Commissioner Kathleen A. Birrane told the House Health and Government Operations Committee at an afternoon hearing.

Tobacco use is one of four factors under the Affordable Care Act (ACA) that insurance carriers can use to place surcharges on a plan enrollee’s premium before any subsidies are applied.

According to Birrane, when the ACA and Maryland Health Benefit Exchange (MHBE) began in 2014, three of six providers in the individual market and five of 13 in the small group market chose to use the tobacco-use rating factor.

But, Birrane said, when the MHBE adopted Connecticut’s state exchange platform in 2015, insurers’ ability to apply tobacco-use ratings disappeared because that system prohibits considering tobacco use as a factor.

And because ratings must be applied at the market level, insurance carriers both on and off the MHBE were no longer allowed to use the rating. So, no insurer in Maryland is allowed to charge tobacco users more, whether their insurance is obtained privately or through MHBE.

“The platform has never been adjusted to accommodate tobacco rating factors, and so no carrier has made an ACA filing that includes tobacco rating factors,” Birrane said.

Some insurers have asked the state about implementing a tobacco-use rating, but any policy decisions on the issue should be made by the General Assembly, Birrane said.

If it were to be allowed in Maryland again, this rating would apply to people who use tobacco products four or more times a week within the previous six months.

Users would be expected to self-identify when they enroll in their health insurance plan. Carriers would then add the tobacco-use surcharge to the enrollee’s unsubsidized premium and the enrollee would be responsible for paying the full tobacco surcharge.

The maximum surcharge allowed, under the ACA, is 50%. Birrane said that, of 42 states that allow insurers to apply the tobacco-use rate, she’s unaware of any state where the maximum surcharge is used.

Brad Boban, chief actuary for the Maryland Insurance Administration, said that, should MHBE change to allow insurance carriers to apply the tobacco-use rating, the Maryland Insurance Administration would expect their surcharge rates to fall in line with other states.

“The General Assembly can enact a cap at a lower level, but even without that cap … the expectation is that carriers would be filing tobacco surcharges in the 5-to-25% range in line with all the other states that we surveyed, in line with publicly available data on how much more expensive tobacco users are than non-tobacco users,” he said.

‘We all do’

Boban said that there are “pros and cons” to applying the tobacco-use rate. For example, non-users’ insurance premiums could fall between 1-2%.

However, the premiums for tobacco users would go up — at a rate proportional to the tobacco-use surcharge for unsubsidized members and at a much higher rate for those who are subsidized.

According to Johannah Fabian-Marks, director of policy and plan management for MHBE, tobacco use is most prevalent in populations that are low-income, uninsured and have lower educational attainment and poor health.

She also said that low-income tobacco users tend to use it longer, are less likely to quit and experience a higher incidence of lung cancer.

Even with a smoker’s surcharge, the Maryland Insurance Administration expects a minimal decrease in enrollment.

Boban said that research shows that tobacco-use ratings dissuade about 11.6% of users from enrolling in health insurance plans.

“Studies have generally shown that tobacco users, to some extent, are discouraged from enrolling because of surcharges,” he said. “The higher the surcharge is the more likely they would be to lapse.”

House Health and Government Operations Chair Shane E. Pendergrass (D-Howard) asked Birrane who pays for tobacco users when they get sick if they choose to leave the market for the uncompensated care pool because of the higher costs.

“We all do,” she said.

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