Smoker vs. Nonsmoker Health Insurance Rates

[Guest jtyson]

Hello -

My coworkers and I are currently going through benefit renewal discussions and the topic of smoker rates vs. nonsmoker rates has come up. We are wondering if anyone out there has experience with implementing this type of rate and how effective it has been. We have previously offered smoking cessation classes with little response.

Any help would be appreciated!

[J Simmons]

You might want to search/post that question at http://www.workforce.com/phpBB/viewforum.p...rum=52&1676

[leevena]

I would stay away from this type of rating. There are a couple of issues that arise, including; 1) how do you determine the additional amount to be charged for the smoker, 2) how do you define a "smoker", i.e., they quit, then smoke again, quit, etc., 3) how do you find out which of your employees are smokers, and 4) how do you determine the dependents that smoke.

Additionally, how do you handle the fall-out from this? You will start to see a schism in the employee group, with some hard feelings developing. From this you will surely see calls for surcharges on other activities that contribute to health care costs, for example, overweight people, people who engage in risky behavior, people who don't take good physicial care of themselves, etc. This could become a hugh nightmare for you.

This surcharge concept is good in the individiual policy world, but very difficult in the group.

[Chaz]

There are HIPAA and possible ADA issues that make this inadvisable.

[leevena]

Chaz...can you be more specific about which parts of ADA and HIPAA you are referring to?

[J Simmons]

Not speaking for Chaz, of course, but as I recall one that is being treated for addiction is considered 'disabled' under ADA. Maybe being treated for being a smoker, even before smoking has stopped, might make this person ADA protected.

HIPAA delineates under what circumstances a wellness program may operate and give incentives without violating HIPAA nondiscrimination.

[Chaz]

J Simmons gave the fast answer.

Basically, HIPAA prohibits using a health factor as a basis for discrimination with respect to either eligibility or premium contributions. There is an exception to the rule for certain qualified wellness programs, the most significant requirements being that (i) the penalty for smokers (or the reward for nonsmokers) must be limited and (ii) there must be an opportunity for a smoker to satisfy an alternative standard (e.g.., the smoker will be entitled to the non-smoker rates if he or she completes (successfully or unsuccessfully) a smoking cessation program). These two requirements often make these programs lose their desirability because of the lack of effectiveness in changing the targeted behavior.

The ADA is slightly out of my area of expertise, but it generally prohibits denying employees an opportunity to receive benefits due to a disability. Interestingly, although I have not checked recently, awhile ago, there was some dispute as to whether nicotine addiction is an actual "disability" under the ADA, which is why I raised the issue of "possible" ADA issues in my original reply.

I should have mentioned that a number of states have "lifestyle" laws, which may put a crimp in these types of programs as well.

[401 Chaos]

I have a similar question that relates specifically to how one calculates the maximum 20% discount permitted for Wellness Programs under HIPAA. The Wellness Program to be adopted here will provide for different premiums for those employees that use tobacoo and those that do not under the Employee Only option. In addition, it will also provide for different premiums for Employee / Family coverage premiums if the employee and/or employee's spouse uses tobacco. In this case, the proposed discount to be provided for Employee Only coverage would be greater than 20% and thus presumably in violation of the Wellness Program regulations. However, the discount to be provided in the case of Employee / Family coverage would be less than 20% and thus presumbably acceptable under the HIPAA rules.

I would generally think that each premium category (employee only vs. employee / family) would generally need to satisfy the 20% threshold on its own but the final regulations on Wellness Programs (54.9802-1(f)(2)(i)) are not as clear as they might be on this. It seems possible to read the final regulations to provide that as long as the employee / family or employee / child premium differentials are within the 20% threshold, the fact that the employee only category is over would not be an issue. Obviously, that seems to gut the whole purpose of the 20% rule for individual employees (or those with spouses covered elsewhere, etc.) Has anybody ever contemplated this. Insights or suggestions as to where I might find more detailed guidance from the DOL would be very appreciated.

[Don Levit]

401 Chaos:

That is an excellent question.

I cannot provide an answer, but I have a question regarding premiums and potential discrimination.

Would it be discriminatory to offer different premiums based on the deductible one selects?

For example, the employer offers one health insurance plan, with deductibles in $5,000 increments, up to $50,000?

Don Levit

[Guest LMPett]

Chaos: Below is from the DOL website regarding HIPAA nondiscrimination and the exception when you have a wellness program in place. You can't do more than the 20% ee spread if you are requiring the employees to satisfy the standard of not smoking (you can do any spread if they don't have to quit, just go to class).

You absolutely MUST HAVE a smoking cessation program available or you are not providing a wellness program. Without a wellness program, you are discriminating against ees based on health factors. Establishing the wellness program is what allows you to charge different premiums.

"What are the five requirements for wellness programs which base a reward on satisfying a standard related to a health factor?

The total reward for all the plan’s wellness programs that require satisfaction of a standard related to a health factor is limited – generally, it must not exceed 20 percent of the cost of employee-only coverage under the plan. If dependents (such as spouses and/or dependent children) may participate in the wellness program, the reward must not exceed 20 percent of the cost of the coverage in which an employee and any dependents are enrolled.

The program must be reasonably designed to promote health and prevent disease.

The program must give individuals eligible to participate the opportunity to qualify for the reward at least once per year.

The reward must be available to all similarly situated individuals. The program must allow a reasonable alternative standard (or waiver of initial standard) for obtaining the reward to any individual for whom it is unreasonably difficult due to a medical condition, or medically inadvisable, to satisfy the initial standard.

The plan must disclose in all materials describing the terms of the program the availability of a reasonable alternative standard (or the possibility of a waiver of the initial standard)."

Don: Hi there, I'm talking to you elsewhere on the board...still looking for answers to other stuff. There are no discrimination issues regarding fully-insured plans but you have to be aware of Section 105 (self-insured) and Section 125 (pre-tax contributions) nondiscrimination tests. If your different deductible plans with different contributions and benefits somehow favor highly-comp employees, no can do.

LMP

[401 Chaos]

Thanks LMPett,

So just to restate my questions slightly, is the 20% threshold requirement included in the materials you provided determined on a category by category basis such that all categories must separately satisfy. Let me put it another way, if my discount for Employee Only Coverage is 21% but my discount for Employee / Family coverage is 19%, I am assuming you fail the 20% test (at least with respect to the employee only coverage piece) and that compliance with the 20% test in just one category in no way cleanses violation in another coverage category?

[Guest LMPett]

Chaos - Here's specific answer from DOL website:

"Can a plan provide a premium differential between smokers and nonsmokers?

The plan is offering a reward based on an individual’s ability to stop smoking.

Medical evidence suggests that smoking may be related to a health factor. The Diagnostic and Statistical Manual of Mental Disorders, which states that nicotine addiction is a medical condition, supports that position. In addition, a report of the Surgeon General adds that scientists in the field of drug addiction agree that nicotine, a substance common to all forms of tobacco, is a powerfully addictive drug.

For a group health plan to maintain a premium differential between smokers and nonsmokers and not be considered discriminatory, the plan’s nonsmoking program would need to meet the five requirements for wellness programs that require satisfaction of a standard related to a health factor.

Accordingly, under the final rules, this wellness program would be permitted if:

The premium differential is not more than 20 percent of the total cost of employee-only coverage (or 20% of the cost of coverage if dependents can participate in the program);

The program is reasonably designed to promote health and prevent disease;

Individuals eligible for the program are given an opportunity to qualify for the discount at least once per year;

The program accommodates individuals for whom it is unreasonably difficult to quit using tobacco products due to addiction by providing a reasonable alternative standard (such as a discount in return for attending educational classes or for trying a nicotine patch); and

Plan materials describing the terms of the premium differential describe the availability of a reasonable alternative standard to qualify for the lower premium. "

[Guest LMPett]

Thanks LMPett,

So just to restate my questions slightly, is the 20% threshold requirement included in the materials you provided determined on a category by category basis such that all categories must separately satisfy. Let me put it another way, if my discount for Employee Only Coverage is 21% but my discount for Employee / Family coverage is 19%, I am assuming you fail the 20% test (at least with respect to the employee only coverage piece) and that compliance with the 20% test in just one category in no way cleanses violation in another coverage category?

Yes, you will fail the 20% test if the ee only discount is 21%. Remember that everything the DOL and IRS advocate is by similarly situated. So combining all discounts will not work.

[Guest LMPett]

Thanks LMPett,

So just to restate my questions slightly, is the 20% threshold requirement included in the materials you provided determined on a category by category basis such that all categories must separately satisfy. Let me put it another way, if my discount for Employee Only Coverage is 21% but my discount for Employee / Family coverage is 19%, I am assuming you fail the 20% test (at least with respect to the employee only coverage piece) and that compliance with the 20% test in just one category in no way cleanses violation in another coverage category?

Sorry, one more for you -- directly from the regs, demonstrates the 20% by ee coverage and family coverage --

Example 1. (i) Facts. An employer sponsors a group health plan.

The annual premium for employee-only coverage is $3,600 (of which

the employer pays $2,700 per year and the employee pays $900 per

year). The annual premium for family coverage is $9,000 (of which

the employer pays $4,500 per year and the employee pays $4,500 per

year). The plan offers a wellness program with an annual premium

rebate of $360. The program is available only to employees.

(ii) Conclusion. In this Example 1, the program satisfies the

requirements of paragraph (f)(2)(i) of this section because the reward

for the wellness program, $360, does not exceed 20 percent of the total

annual cost of employee-only coverage, $720. ($3,600 x 20% = $720.) If

any class of dependents is allowed to participate in the program and

the employee is enrolled in family coverage, the plan could offer the

employee a reward of up to 20 percent of the cost of family coverage,

$1,800. ($9,000 x 20% = $1,800.)

[401 Chaos]

thanks. very helpful

[GBurns]

This might be helpful:

http://www.dol.gov/ebsa/pdf/fab2008-2.pdf

And from the DOL HIPAA Compliance Guide:

Question 24 -- Nondiscrimination in premiums or contributions

Does the plan comply with HIPAA’s nondiscrimination rules regarding

individual premium or contribution rates? ................................................

 Under ERISA section 702(b) and 29 CFR 2590.702©, plans may not require an

individual to pay a premium or contribution that is greater than a premium or contribution

for a similarly situated individual enrolled in the plan on the basis of any

health factor. For example, it would be impermissible for a plan to require certain

full-time employees to pay a higher premium than other full-time employees based

on their prior claims experience.

 Nonetheless, the nondiscrimination rules do not prohibit a plan from providing

a reward based on adherence to a wellness program. See ERISA section

702(b)(2)(B); 29 CFR 2590.702(b)(2)(ii) and ©(3). Final rules for wellness

programs were published on December 13, 2006, at 71 FR 75014. These rules

permit rewards that are not contingent on an individual meeting a standard related

to a health factor. In addition, these rules permit rewards that are contingent on an

individual meeting a standard related to a health factor if:

 The total reward for all the plan’s wellness programs that require satisfaction of

a standard related to a health factor is limited – generally, it must not exceed 20

percent of the cost of employee-only coverage under the plan. If dependents

(such as spouses and/or dependent children) may participate in the wellness

program, the reward must not exceed 20 percent of the cost of the coverage in

which an employee and any dependents are enrolled.

 The program must be reasonably designed to promote health and prevent disease.

 The program must give individuals eligible to participate the opportunity to

qualify for the reward at least once per year.

 The reward must be available to all similarly situated individuals. The program

must allow a reasonable alternative standard (or waiver of initial standard) for

obtaining the reward to any individual for whom it is unreasonably difficult due

to a medical condition, or medically inadvisable, to satisfy the initial standard.

 The plan must disclose in all materials describing the terms of the program the

availability of a reasonable alternative standard (or the possibility of a waiver

of the initial standard). A model notice is provided in the Model Disclosures on

page 81.