The potential unintended consequences of the Affordable Care Act are unsettling enough, but even without the ACA, employers have been stung by soaring increases in health insurance premiums. In this atmosphere, employers must do what they can to control costs. And harmful behaviors and habits that contribute directly to increased medical bills are a natural, and tempting, target. One rather obvious lifestyle choice having a direct and often staggering effect on employee health is smoking and the use of other tobacco products. As we will see, too, the harmful effect of these behaviors are not just medically related.
Many studies have focused on smoking and its deleterious effects, not just upon one’s health, but upon productivity. A study of 20,000 employees showed that smokers had more hospital visits per 1,000 (124 versus 76), had a longer average length of stay (6.5 versus 5 days) and made six more visits to health care facilities per year than non-smokers. Smokers miss an average of 6.16 days of work per year compared to 3.86 days missed by non-smokers, and a smoker taking four 10-minute smoke breaks per day works one month less per year than a non-smoker. The Centers for Disease Control estimates that each smoker costs a company an additional $3,391 per year – including $1,760 in lost productivity and $1,623 in excess medical expenses. So smokers seem to be an excellent target to help employers manage costs.
Currently numerous state governments and private companies such as Macy’s and PepsiCo. charge higher insurance premiums to employees who smoke, and some companies refuse to hire smokers. The ACA recognizes the increased costs associated with smoking employees by allowing insurers to raise smokers’ premiums up to 50 percent over those paid by non-smokers.
Smoking clearly impacts health care costs and may legitimately affect premium rates, but are there pitfalls and dangers in imposing premium differentials? Not surprisingly, implementing a differential does involve some risk. For one, the Health Insurance Portability and Accountability Act (HIPAA) prevents employees in group health plans from being charged more because of a “health factor,” which includes health status, medical condition and claims experience, among other things. Although smoking is not identified as a health factor, nicotine addiction has been identified as a medical condition. Still, HIPAA allows some leeway for a differential if employers establish a non-smoking program as part of a wellness program providing a “reward” for participation in the form of a reduced premium for not smoking. The wellness program must satisfy the following four requirements:
- the “reward” is no more than 20 percent of the total premium;
- the program is reasonably designed to promote health and prevent disease;
- eligible employees must be given an opportunity to qualify for the reward at least once per year; and
- a reasonable alternative such as attending educational classes must be given to employees for whom it is unreasonably difficult to stop smoking. And all program materials must disclose the availability of the alternative.
Another potential legal problem arises from the Americans with Disabilities Act’s prohibition against discriminating in benefits with respect to qualified individuals with disabilities. Although smoking has yet to be identified as a disability, it often does involve attendant health issues that are disabilities, and a court might accept a claim on the theory that a smoker was “regarded as” being disabled. Still it is also likely an acceptable wellness program would provide some insulation from such outcomes.
Proponents for smokers also argue that as the less affluent, less educated are more likely to smoke and to not participate in smoke cessation programs, imposing a differential has a disproportionate adverse impact, which may amount to racial or national origin discrimination. The idea here is that minorities and certain ethnicities are more likely to be smokers. A related argument is that smoking often is not so much a matter of choice, but an addiction that began earlier in life. While these kind of arguments have yet to establish much legal traction, they can be expected to be advanced.
Some potential state law concerns also could arise with a differential. Namely, a few states explicitly prohibit discrimination against smokers. In addition, some states have laws protecting employees who engage in legal off-duty conduct such as smoking.
While legal concerns exist, there are compelling reasons to implement a differential for smokers. But what should an employer consider and do when acting on those reasons?
- Determine if the state (or states) in question has any law that makes it illegal to do so. Even if such a law exists, all may not be lost, as some state laws may be preempted by federal law.
- Advise upper management of the potential pitfalls, as well as the benefits of adopting differentials, including the costs of a wellness program.
- If a union is in the picture, a differential would probably be a mandatory subject of bargaining. Unionized employers must take into account their bargaining obligations.
- Establishing a compliant wellness program with a smoking cessation program and alternative mechanisms for some smokers, are key components of any decision to impose a differential. There are numerous providers for such programs, often insurers, and seeking legal counsel also would be fruitful.
- Once implemented, the impact of the differential should be monitored to determine if it results in a disparate impact on employees in protected groups such as minorities and specific ethnicities.
- Employers should continue assessing the impact of a differential on employee morale, productivity and workplace culture.
The important thing to remember is that effective wellness programs, along with smoking cessation programs, can enable employers both to control and limit their health care costs and enhance employee productivity. Both goals are important and necessary in today’s business climate.