Helping employers avoid tobacco surcharge
To meet legal requirements and realize savings in healthcare premiums and employee productivity, the implementation of smoking surcharges should be paired with a robust smoking cessation program.
Since 2014 the Affordable Care Act has permitted employers and insurance companies to charge tobacco users up to 50% more in premiums. States, however, can set their own rules to reduce or eliminate that surcharge and so far at least 10 have done so, including most notably California, where the permissible surcharge has been cut to to zero. The Health Insurance Portability and Accountability Act, meanwhile, requires that smokers be offered the opportunity to meet “a reasonable alternative standard” in order to get a pass on higher contribution levels.
“Generally this ‘reasonable standard’ means that an employer will offer some form of smoking cessation program but that is not the only alternative,” says Mercer healthcare and benefits practice partner Steven Noeldner. “Some people get a doctor’s recommendation for a particular approach to managing their addiction and in individual cases a physician may even recommend that the surcharge be waived because he deems it inadvisable for the individual to stop using tobacco.”
Employers have the last word on what “a reasonable standard” is and smokers are typically asked to self-identify in a simple affidavit. But Noeldner says a very small, single digit percentage of employers opt for blood or saliva testing for cotinine levels.
The Society for Human Resources Management recently surveyed 375 member organizations regarding their workplace smoking policies and practices. Survey results reveal that many more organizations seem to prefer supporting employees in their efforts to quit by offering wellness information (54%) than by imposing smoking surcharges (18%).
Bruce Elliott, SHRM’s manager of compensation, admits that the number of companies currently imposing smoking surcharges is low but he believes increasing numbers of employers will be adopting additional fees for smokers as a way to encourage their employees to start thinking about or even quitting smoking.
Nevertheless, he acknowledges that a surcharge by itself is not going to work. “You need that wellness information, including smoking cessation programs and other information,” he says.
Impact on affordability
The American Lung Association opposes the use of tobacco surcharges because it believes that increased healthcare premiums for smokers have not been proven effective in encouraging smokers to quit and in reducing tobacco use.
Based on a California study, the ALA suggests that tobacco surcharges can result in smokers paying thousands of dollars more in health insurance premiums with an average tobacco user paying 18.7% of his annual income because of the permitted surcharge.
“At the ALA we are very aware that people who smoke have a much higher chronic disease burden. We should be trying to make sure they have access to appropriate health care rather than creating barriers."
“At the ALA we are very aware that people who smoke have a much higher chronic disease burden. We should be trying to make sure they have access to appropriate health care rather than creating barriers,” says Paul Billings, VP of national policy and advocacy at the American Lung Association.
Mercer’s Noeldner agrees that employees opting out of employer-sponsored healthcare insurance simply because the incremental smoking premium is “the straw” that makes the program unaffordable is not a desirable outcome. However, he says employees can voluntarily mitigate this risk by meeting the “reasonable alternative standard” established by the employer.
“Certainly we don’t recommend that organizations go into this endeavor with the idea that they are trying to create roadblocks that will make it difficult for a certain segment of the population to earn their livelihood and earn reasonable incentives for taking actions to improve their health like everybody else,” he says.
The elephant in the room for many employers considering a smoking surcharge is the extent to which implementing a smoking surcharge will improve their bottom line.
The cost implications of imposing smoking surcharges in parallel with smoking cessation programs is employer-specific, depending on the demographics of the workforce and how the plan is funded. But there are also potential collateral benefits including increased productivity (in part, due to less time lost for smoking breaks), lower rates of absenteeism and a healthier workforce. As a result, the ROI can be significant.
An Optum case study reveals that when the Green Bay Wisconsin transportation company Schneider National required that smokers participate in the Optum QuickPower tobacco cessation program to receive the premium surcharge waiver, within two years 5% of the company’s employees enrolled. From 2010 to 2011 the percentage of smokers at the company dropped from 9.6% to 8.7% and the company documented savings of $267,678 in health costs and productivity.
Companies planning to implement smoking surcharges will be interested in a report issued by Alere Health (now Optum) discussing best practices for adopting premium differentials in tobacco cessation. The study recommends the development of a concrete plan with multi-level support and availability of a tobacco cessation program before surcharges are imposed.
Noeldner also believes it is important for organizations to prepare their workforce by starting to communicate a year or more in advance of implementing any surcharge. “They could begin by putting policies and practices in place that eliminate smoking on campus. Then they might offer nicotine replacement therapy and counseling as early as possible,” he says.
SHRM’s Elliott says that employers should make it clear to employees why they believe higher premiums or other incentives for employees to stop smoking are necessary. “Tell them healthcare costs for smokers are significantly higher and they are growing at a faster rate versus the national average,” he says. “Explain that you are doing this to not only save the company and employees money, but to help them improve their health.”