A computer glitch involving the new health care law may mean that some smokers won’t bear the full brunt of tobacco-user penalties that would have made their premiums much higher — at least, not for next year.
The Obama administration has quietly notified insurers that a computer system problem will limit penalties that the law says the companies may charge smokers, The Associated Press reported Tuesday. A fix will take at least a year.
The problem relates to the computer system where insurers submit their “qualified” health plans to be offered on the new exchanges where individual insurance plans will be sold beginning Oct. 1.
“This is a temporary circumstance that in no way impacts our ability to open the marketplaces on Oct. 1, when millions of Americans will be able to purchase quality, affordable insurance for the first time,” said Joanne Peters, a spokeswoman for the Department of Health and Human Services, in an e-mailed statement.
Starting in 2014, the law requires insurance companies to accept all applicants regardless of pre-existing medical problems. But it also allows them to charge smokers up to 50 percent higher premiums to ward off bad risks. For an older smoker, the cost of the full penalty could be prohibitive.
The underlying reason for the glitch is another provision in the health care law that says insurers can’t charge older customers more than three times what they charge the youngest adults in the pool.
According to a June 28 guidance from the government to insurers quoted by The A.P., “Because of a system limitation … the system currently cannot process a premium for a 65-year-old smoker that is … more than three times the premium of a 21-year-old smoker,” the guidance said. If an insurer tries to charge more, “the submission of the (insurer) will be rejected by the system,” it added.
Ms. Peters said in her statement that the problem is temporary. For 2014 only, “tobacco ratings across age groups cannot produce premiums that are more than a three-to-one ratio,” she said. “In 2015 and beyond, the system will expand to allow issuers to increase this ratio, if they choose to do so.”
Older smokers are more likely to benefit from the delay, experts say. But depending on how insurers respond to it, it’s also possible that younger smokers could wind up facing higher penalties than they otherwise would have.
The glitch could mean that insurers could charge all smokers the maximum allowable surcharge to get around the ratio problem, which would end up penalizing younger smokers with higher penalties than they might otherwise have received. But it is unclear what insurers will do.
“‘We are aware of the issue,” said Robert Zirkelbach, a spokesman for America’s Health Insurance Plans, an insurance industry group. “But I can’t speak to how insurers will respond to it.”
He said he was unaware of any estimates of how many people would be affected by the law’s insurance smoker surcharges.
Premiums for a standard “silver” insurance plan would be about $9,000 a year for a 64-year-old nonsmoker, according to the online Kaiser Health Reform Subsidy Calculator. That’s before any tax credits, available on a sliding scale based on income.
For a smoker of the same age, the full 50 percent penalty would add more than $4,500 to the cost of the policy, bringing it to nearly $13,600. And new tax credits available to help pay premiums cannot be used to offset the penalty.
The administration is suggesting that insurers limit the penalties across all age groups. The guidance document from the Department of Health and Human Services used the example of a 20 percent penalty for young and old alike.
In that case, the premium for a 64-year-old would be about $10,900, a significant cut from the $13,600 if insurers charged the full penalty.
Workers covered through job-based health plans would be able to avoid tobacco penalties by joining smoking cessation programs, because employer plans operate under different rules.