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Variation in the Tobacco Surcharge and Plan Affordability for Tobacco-Users under the Affordable Care Act
New federal guidelines for individual health plans sold on the health insurance exchanges established under the Affordable Care Act (ACA) allow insurers to charge tobacco users up to 50% more for insurance premiums. States may set more restrictive limits, and insurers are free to set tobacco surcharges at any level up to those limits and have differential surcharges by age. Differences in tobacco surcharges could lead to differential selection of plans by tobacco users and non-users, raising concerns for adverse selection.
Methods:
We examined insurance premiums from individual health insurance exchanges to describe variation in tobacco surcharges by state and across insurance plans within states. We then calculated the premiums that would be paid after federal subsidies for both tobacco users and non-tobacco users in order to estimate which states lack affordable coverage by income level for tobacco users and non-users. Affordable coverage is defined by the ACA as having at least one plan available with premiums less than 8% of income. Individuals without access to affordable coverage are exempted from the mandate.
In order to provide perspective on the additional cost associated with insuring a smoker for a year, we compared one-year unadjusted health expenditures between commercially insured smokers and non-smokers using Medical Expenditure Panel Survey (MEPS) data.
Results:
We collected complete premium amounts from 36 states (100% state run, and 58% of federal run exchanges). The median plan in the health insurance exchanges charged only 10% higher premiums to tobacco users, and nine in ten plans had a lower surcharge than allowed. This lower-than-allowed surcharge is consistent with our MEPS analyses, which suggests that, as a group, smokers may not cost more than non-smokers. However, even with the lower than allowed surcharges, tobacco users lacked affordable coverage in more states than did non-tobacco users. For example, among individuals with incomes of $35,000 per year, tobacco users lacked affordable coverage in 12 of the 36 states in our sample compared to just 2 states for non-users.
Conclusions:
Our results suggest that the variation in tobacco surcharges may result in adverse selection and could be influential in tobacco users’ decisions to opt out of coverage.