The Obama administration — in yet another health care overhaul delay — has quietly notified insurers that a computer system glitch will limit penalties that the law says the companies may charge smokers. A fix will take at least a year to put in place.
Older smokers are more likely to benefit from the glitch, 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.
And what exactly is the glitch?
A June 28, Health and Human Services Department document couched the smokers’ glitch in technical language:
“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 industry guidance said.
If an insurer tries to charge more, “the submission of the (insurer) will be rejected by the system,” it added.
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, a way for insurers to ward off bad risks.
For an older smoker, the cost of the full penalty could be prohibitive.
Premiums for a standard “silver” insurance plan would be about $9,000 a year for a 64-year-old non-smoker, 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 tax credits can’t be used to offset the penalty.
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. The government’s computer system has been unable to accommodate the two. So younger smokers and older smokers must be charged the same penalty, or the system will kick it out.
There are two potential solutions that work within the government limitations:
1. The administration is suggesting that insurers limit the penalties across all age groups. The HHS guidance document used the example of a 20 percent penalty.
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.
2. Another workaround for the companies would be to charge the full penalty to both younger and older smokers. In that case, there wouldn’t be any savings for older smokers, and younger ones would see a big price shock.
Levitt said he suspects insurers would keep the penalties low to sign up more young people. Laszweski said he thought they would do the opposite.
Good grief. Believe it or not, insurance companies don’t make up rates by accident. If they charge everyone only a 20% penalty, then they are going to need to raise rates in general on everybody to “make up the difference”. If they charge everyone the 50% penalty, then perhaps they could lower the general rates. That said, it’s probably too late to be fooling with the base rates. I suppose they could “split the difference” and charge all smokers only 35% more? That’s still a “young invincible” screw job.
Additionally, if the 2nd option, the young invincibles get screwed option, is implemented, that only makes it easier for the young and healthy to pay the penalty and not sign up, which supposedly breaks Obamacare.