Beginning July 1, Georgia will impose a surcharge of $40 per month--or $480 a year--on the insurance premiums of state workers, public school teachers and other school personnel if they or covered family members use tobacco.
"As a self-funded plan, we collectively bear the burden of everyone’s health status," says a spokeswoman for the Georgia Department of Community Health in Atlanta.
Last fall, the state’s health plan, with the help of outside consultant Deloitte Development, projected a $446.1 million shortfall for the insurance fund in the 2006 fiscal year because of mounting health care costs. Georgia’s plan covers nearly 646,000 members and dependents.
Among the proposals presented to lawmakers to address the deficit was the employee tobacco-use surcharge, which won approval with expectations of generating about $16 million a year.
Under Georgia’s program, state workers during open enrollment will be asked, "Have you or any of your dependents used tobacco products in the previous 12 months?" Tobacco products include cigarettes, cigars and pipes as well as "smokeless" products, such as chewing tobacco.
Individuals who report tobacco use will incur a flat surcharge of $40 a month during the upcoming plan year, regardless of frequency of use in the prior year. Separate surcharges will not be applied for each covered member, even if multiple dependents are tobacco users.
The policy relies on the honor system, and there are no mechanisms in place for tobacco testing. Employees found to be concealing tobacco use risk losing medical coverage for one year.
Georgia employees, who were notified of the new fees through open-enrollment materials sent in April, have had a mixed response, according to the community health department spokeswoman.
The spokeswoman says the surcharge aims to "encourage healthy behavior and lifestyles" as well as to reduce the funding shortfall.
The state does not currently provide tobacco-related wellness programs, such as smoking cessation benefits or counseling. "At this point we do not," she says, but "it’s being discussed."
Alabama also plans to impose a tobacco-use charge. Starting Oct. 1, a supplemental fee of $20 per month--or $240 a year--will be applied to state workers’ health insurance if they or a spouse use tobacco, said a spokeswoman for the Alabama State Employees’ Insurance Board in Montgomery. Child dependents are exempt.
The increases will apply to all of the self-insured plan’s 100,000 active employees, retirees and dependents and waived when the individual signs a tobacco-free certification form. The insurance board is relying on a self-reporting system, with no plans for tobacco testing, but has been "amazed" by the number of workers who have admitted to tobacco use, the spokeswoman says.
Unlike Georgia, Alabama is offering a smoking cessation program. "That is part of what we had to develop with the premium changes and the penalties," the spokeswoman says. "You have to give people a chance."
Sticks and carrots
While consultants say employers are legitimately concerned about the size of their tobacco-using worker population, as smokers’ overall medical costs generally are higher on average than nonsmokers’, most also agree that a "stick" approach to the problem is fair and effective only when "carrots," such as smoking cessation counseling and products, are also available.
In a December survey of 270 benefits and human resources managers conducted by the Society for Human Resource Management, 5 percent said they charge smokers higher premiums. In addition, 32 percent of surveyed companies said they offer smoking cessation programs.
"It’s unusual for an employer to establish a penalty and not provide assistance for avoiding the penalty," notes Bruce Kelley, a senior consultant for Watson Wyatt Worldwide in Minneapolis.
Last year alone, smokers cost the United States $157.7 billion in health-related economic costs, according to the U.S. Surgeon General’s Office.
"Health plans are picking up most of that cost, and I think that’s why the employer thinks it’s OK to intervene," Kelley says.
Medical plan contribution differentials for smokers and nonsmokers are becoming increasingly common, consultants say, and are already embraced by companies such as Minneapolis-based General Mills Inc. and Milwaukee-based Northwestern Mutual.
In addition, the health care plans of states such as Kentucky, South Dakota and West Virginia have or plan to introduce different health insurance rate structures for smokers and nonsmokers.
"Employers are getting more creative with plan design, with ways to reward healthy behaviors, and to create shared responsibility for poor health decisions," says Camille Haltom, national practice leader for managed health consulting at Lincolnshire, Illinois-based Hewitt Associates.
"I think the programs that are voluntary may work the best," says Tom Lerche, senior VP with Aon Consulting in Chicago. "Financial incentives or disincentives by themselves, we’re not optimistic that they’ll necessarily change behavior."
Kelley says he favors positive incentives, such as a discount for completing a smoking cessation program. "Just penalizing smokers financially is probably not going to convince many people to quit," he says. "I think that what they need is support and programs that help them to change behavior."
Employers butt in
From breathalyzers and urine tests to monthly cash penalties, employers are using an array of tactics on tobacco users to curb group health insurance costs.
Georgia state employees, public school teachers will pay an extra $40 per month for coverage starting July 1, if they or their dependents admit to using tobacco products in the previous year.
A $20 monthly surcharge will be applied to Alabama state workers starting October 1 if covered employees or spouses report themselves as tobacco users.
South Dakota since 1997 has had different health premium structures for smoking and nonsmoking state employees; smokers currently pay $30 extra per month.
Montgomery County in Pennsylvania is attempting to change its application process to prevent the hiring of smokers. If approved, the new law will take effect January 1.
State employees and retirees in West Virginia are required to sign a "Tobacco Affidavit" certifying that they are tobacco-free in order to obtain discounts on health and life insurance premiums.
Warrenville, Illinois-based trucking firm Navistar International in July is raising health care premium contributions by $50 a month for employees who smoke.
Starting January 1, workers at Milwaukee-based Northwestern Mutual Life Insurance will be subject to a $25 fee on monthly health care premiums if the employee or his/her dependents are smokers.
Weyco Inc, an Okemos, Michigan-based health benefits administrator, earlier this year stopped employing smokers, vowing to fire workers who continue smoking in violation of the policy.
Omaha, Nebraska-based Union Pacific last fall stopped hiring smokers in several states, including Texas and Arkansas.
Alaska Airlines for almost a decade has required applicants to pass a urine test for tobacco in order to be considered for employment.
From the May 23, 2005, issue of Business Insurance. Written by Rupal Parekh