I was particularly intrigued when the State of California chose to opt out of the option to have smoker and non-smoker rates for health insurance as allowed by the Affordable Care Act (aka Obamacare). The law allows the insurer to charge smokers up to 50% more than the non-smoker rate.
Our state was influenced by a number of studies that indicated smokers would simply not be insured because of the price differential. With the long term goal of smoking cessation and universal coverage, the state opted for the carrot rather than the stick. Plans include benefits for smoking cessation and no additional cost to the smoker.
Full disclosure: I detest cigarette smoke. I started drawing red rings around my parents’ cigarettes in 1968. I watched my mother die from COPD, fighting air hunger, even though she had quit more than a decade before her death. When cleaning out her place, I offered her oxygen tubing to my “still smoking” siblings, with the comment, “Might as well take it now. You will need it eventually”. That didn’t make me too popular, by the way.
The behavior of big tobacco, who knew full well of the addictive properties of their product, has been no less than unconscionable. To me, this is much the same as big pharma and how they helped to create a nation of opioid addicts. (Another column.)
As a fiscal conservative (also called “cheap”) I could never justify smoking based on cost. In spring 2017 California implemented an additional $2 per pack tax, bringing the cost of a pack from $6-8. A pack-a-day smoker could be paying as much as $3000 per year.
While health insurance companies do not upcharge for smoking, other insurance products do charge according to tobacco risk. Car insurers charge about 5% more, homeowner’s charges can be up to 20% more. Disability income insurance rates increase by 25% for tobacco use.
A recent life insurance case study was of particular interest. A 63 year old male wanted $250,000 of 10 year level term life insurance. The best rate for a healthy non-smoker was in the range of $110 monthly. But as a smoker the lowest possible rate with one carrier is $512 monthly.
After one year tobacco free this gentleman might qualify for a standard life insurance rate of $188, but it would take 5 years tobacco free to get to the best rate class. This is just one carrier, but the concept is clear. Insurance companies see smoking as risky behavior and are going to charge for it.
Actuaries don’t have my prejudice. They work with numbers and statistics. There are no “alternate facts” when it comes to smoking.
If this tobacco using man were to insure his car for $800 year, home $800 year and life ($250,000) as a smoker, the additional insurance costs would be about $5000 ($40+160+4800). Then add the cost of the cheapest brand of cigarettes at $6 per pack-day or $2200 for the year, and it’s up to over $6000 in direct costs to that individual. That doesn’t include the additional costs of carpet and drapery cleaning if you are interested in removing the stench from the home.
It’s important to note that while marijuana is not legal by federal standards, its admitted use is much more common. Insurer ratings are based on a number of factors such as recreational vs. medicinal use and quantity. Much like alcohol, frequent marijuana use negatively impacts rates. Medicinal marijuana is evaluated in relation to the medical diagnosis used to obtain the prescription.
Obviously, cancer diagnoses often result in a decline for life insurance anyway. But sleep disorders, chronic pain or anxiety issues can raise other red flags. So if you have obtained a prescription for what is actually recreational use, be aware that you may find negative effects elsewhere.
California has the second lowest tobacco use rate in the country declining between 1988 and 2014, from 23.7% to 11.6%. So it looks like we must be doing something right with our “sin taxes”. Sadly the highest smoking rates are among those least able to afford it- those below 300% of the Federal Poverty Level. Travel to the Midwest or the south and it becomes glaringly apparent how different we are in California. Non-smokers are reminded of how grateful they are for the fact that California has such strict rules.
Smoking-related illness in the United States costs more than $300 billion each year, including: Nearly $170 billion for direct medical care for adults. More than $156 billion in lost productivity, including $5.6 billion in lost productivity due to secondhand smoke exposure according to the Centers for Disease Control (CDC). In short, smoking is expensive on every level!