Things Are Not Always As Intuitive As They May Seem

Photo credit: CNBC

by Dick Hall-Sizemore

Sometimes, public policy proposals can be counterintuitive.

Virginia law authorizes health insurance companies to charge smokers up to 50% greater than the premium that would otherwise be effective. The 2022 General Assembly passed legislation that would have repealed this authorization. The bills, HB 675 (Hope, D-Arlington) and SB 422 (Edwards, D-Roanoke), passed both houses with strong bipartisan majorities.

The Governor vetoed them.  His explanation for the vetoes was:

Smoking and tobacco use are among the leading causes of chronic health problems that result in higher healthcare costs. This legislation would force insurance companies to recover costs associated with tobacco users by raising premiums on non-tobacco users. The ability to reduce premiums by quitting smoking is also a valuable incentive to encourage healthier habits.

Requiring non-tobacco users to cover the increased healthcare costs associated with tobacco use is not a policy I can support.

On its face, this explanation sounds reasonable. After all, society should discourage smoking and no one wants to subsidize unhealthful habits.

However, and this is where the counterintuitive part kicks in, the legislation was a recommendation of the Joint Commission on Health Care. The Commission is a bipartisan standing commission of the General Assembly, established in the Code. Its mission is to conduct research and make recommendations to “ensure that the Commonwealth as provider, financier, and regulator adopts the most cost-effective and efficacious means of delivery of health care services so that the greatest number of Virginians receive quality health care.” The Commission has a professional staff of six, plus administrative staff, to support it.

In a 2021 report, the Commission examined, among other issues, the tobacco use surcharge on health insurance premiums. It reported, “The purpose of the tobacco surcharge is to encourage people to take advantage of tobacco cessation programs offered by insurers. However, numerous studies have found that the tobacco surcharge does not promote tobacco cessation and is more likely to act as a barrier to coverage, especially for individuals with low income.”

Furthermore, its analysis indicated that eliminating the surcharge could result in an overall decrease in premiums by as much as 3%. The decrease would be the result of lower-income people who are currently priced out of the health insurance market due to the surcharge, being able to buy health insurance. The Commission reported that “the number of individual market enrollees is estimated to increase by as much as 13,000 compared to the baseline under current law” if the surcharge were eliminated.

In summary, the Governor’s contention, “This legislation would force insurance companies to recover costs associated with tobacco users by raising premiums on non-tobacco users,” is not supported by evidence. In fact, analysis flatly contradicts the Governor’s claim. Evidence also does not bear out his claim that the ability to avoid the tobacco surcharge is a “a valuable incentive to encourage healthier habits.”

The Governor’s rationale is faulty in another aspect. He justifies the tobacco surcharge on “chronic health problems” caused by tobacco use. The Commission reports that “tobacco use of any kind among the adult population is less than 20%.” However, more than one-third of the population is obese and obesity is linked to more than 60 chronic diseases. If tobacco users have to pay up to 50% more for health insurance due to the health problems associated with tobacco, why shouldn’t obese individuals be subject to the same surcharge?

This legislation likely would have resulted in lower health insurance premiums for Virginia residents, or, at least, less of an increase, and more people covered by health insurance were it not for the Governor’s action.