Tobacco Use Surcharges

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In 2014, a health insurer can impose a tobacco use surcharge of up to 50% on consumers in the individual and small group markets.  This surcharge can be applied to insurance plans sold in the private market and on the public exchange.  The surcharge can be applied to any individual that used a tobacco product an average of four or more times per week within no longer than the past 6 months.  If a consumer begins using tobacco after purchasing insurance, the surcharge will not apply until the following plan year.  Additionally, if a consumer quits using tobacco after purchasing the health insurance, the premium is not required to be lowered until the following year.

The 50% surcharge does not apply to large group, grandfathered, or self-funded plans.  The surcharge can only be applied to small group insurance if it is connected to a wellness program that allows a tobacco user to avoid paying the surcharged premium by participating in a tobacco cessation program.

The tobacco surcharge only emphasizes the importance of wellness initiatives within the Affordable Care Act, and dovetails with the increased incentives employers may charge within their own wellness programs.  It’s important that employers recognize wellness’ ability to improve the health of their employees and its critical role in the contribution strategy of the employer-sponsored health insurance.

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