R Street-Heartland paper looks at how insurers treat tobacco
WASHINGTON, D.C. (July 12, 2012) — As a growing number of former smokers turn to nicotine replacement therapies, e-cigarettes and certain other forms of smokeless tobacco, state and federal lawmakers and regulators may want to explore granting life and health insurers greater flexibility to distinguish between different forms of tobacco and nicotine use in their rating and underwriting plans, R Street Institute President Eli Lehrer argues in a new policy brief.
Co-published by R Street and the Heartland Institute, the paper explores a growing body of data, including several studies from the U.S. Food and Drug Administration, finding that certain tobacco and nicotine products pose lesser health risks than smoking. Given these findings, some insurers may find it appropriate to apply different underwriting and ratings criteria to users of each type of product.
“The preponderance of scientific evidence indicates tobacco products are not all equally dangerous,” Lehrer wrote. “In some cases, rating individuals on the basis of tobacco use alone, without distinguishing between different kinds, may cause insurers to miss opportunities to make better and more profitable rating and underwriting decisions.”
The issue takes on additional significance in light of pending implementation of the Patient Protection and Affordable Care Act, which strictly proscribes allowable rating factors but allows health insurance premium rates to vary by up to 50 percent based on whether an insured is a tobacco user. Given that criteria such as claims history, general health and preexisting conditions soon will be barred from use in health insurance rating, the relative importance of tobacco is likely to grow.
“Insurers should, of course, consult their own actuarial data and business objectives in deciding how to treat tobacco use,” Lehrer wrote. “A good deal of evidence, however, indicates a nuanced approach to tobacco use in insurance rating could create a competitive advantage for some insurers in some cases.”
To read the full report, please visit: http://redesign.rstreet.org/policy-brief/how-should-insurers-treat-tobacco-use-a-review-of-the-research/
R Street is a non-profit public policy research organization that supports free markets; limited, effective government; and responsible environmental stewardship. It has headquarters in Washington, D.C. and branch offices in Tallahassee, Fla.; Austin,Texas; and Columbus, Ohio. Its website is www.redesign.rstreet.org.
