How Do E-Cigs Affect Your Health Insurance Plan?

NEW YORK (MainStreet) — Puffing away on an electronic cigarette is becoming increasingly popular, but the rule for partaking in them is not clear when you sign up for health insurance.

Some insurers may attempt to charge e-cigarette users a higher premium. Since the battery-powered product only simulates cigarette smoke by creating a smoke-like vapor that contains nicotine and other flavors, but not tobacco, it is not being regulated by the Food and Drug Administration. The FDA regulates regular cigarettes and cigars currently and issued a proposed rule that would classify e-cigarettes as tobacco products.

When you are purchasing health insurance, the application asks consumers if they are a tobacco user. If you answer yes, you could pay up to 50% more than non-tobacco users. The questions posed on the applications vary widely and can be confusing since most of them only ask if you use tobacco on a regular basis, not if you use e-cigarettes, said Carrie McLean, director of customer care at eHealth.com, an online health insurance exchange based in Mountain View, Calif.

If you are confused about the language being used on the application, start by calling the insurance company and asking a representative to clarify the policy since some companies want e-cigarette users to mark themselves as tobacco users on the form while others do not, she said.

"When shopping for coverage, call the health insurance company you're considering and ask them about their policy," McLean said. "Ask first of all whether you should identify as a tobacco user and if the answer is yes, what that's going to mean for your health insurance premiums."

Many changes will occur in health insurance applications for 2015 since there are still no hard and fast rules yet about how insurers should treat e-cigarettes.

"It's a fluid situation," she said. "The language about tobacco use on health insurance applications may not specifically address e-cigarette users today. It's a good bet that the language on 2015 health insurance applications may be more specific. Be on the lookout when applying for health insurance plans next year."

Consumers who find themselves with higher premiums because they are e-cigarette users should consider a Health Savings Account-eligible plan. HSAs were created to save consumers money on a tax-free basis because they have high-deductible health insurance plans.

HSAs allow people to allocate money to cover certain medical expenses such as prescription medications, doctor visits, dentist visits and eyeglasses. Their contributions are not subject to federal income taxes and can be invested like an IRA. The advantage of HSAs is that the unused funds roll over each year and any remaining money can be used for retirement after the age of 65.

People who buy coverage on the public health insurance exchanges are especially good candidates, since most of the purchased plans (including silver and bronze plans under the Affordable Care Act) are high deductible plans. A high deductible is defined as at least $1,250 for an individual and at least $2,500 for a family.

"Although you can't use those funds to help pay for your premiums, it can help you offset the costs of co-payments and annual deductibles and premiums for HSA-eligible plans are often more affordable," said McLean. "Just be aware that HSA-eligible plans often have higher annual deductibles, so make sure you can afford it in case of emergency."

Under the ACA, insurers are allowed to charge tobacco users increased premiums because of the increased health risks associated with tobacco use. Some states such as California have opted to override this and require insurers to charge tobacco users the same rates as non-users.

Neither the health insurance industry and government entities regulating health insurance have reached a broad consensus on how to handle e-cigarettes. Only one or two nationwide insurers specifically ask whether a health insurance applicant is a user of e-cigarettes, but it is unknown what they do with the information, she said.

"Having spoken with a number of health insurance companies which we cannot name, some of them say that they do want e-cigarette users to mark themselves on tobacco users on the health insurance applications," McLean said. "Others say that this is not necessary."

Life and health insurance carriers generally define tobacco usage as the use of tobacco or tobacco cessation products in the past 12 months, said Dorothy Miraglia, executive vice president of Engage Insurance, a St. Petersburg, Fla. professional employer organization providing human resources outsourcing solutions to small and mid-sized businesses.

Although e-cigarettes don't really "combust" in the way that other tobacco products do, most life and health insurance companies will give a smoker's rate for the use of e-cigarettes and consider e-cigarette users the same as those who light up tobacco cigarettes, she said.

"The reason behind this is because they consider the water-vapor devices that make up the e-cigarette to be 'tobacco' products," said Miraglia.

While the long-term health risks associated with e-cigarettes remain unclear, most insurance companies are erring on the side of caution to appropriately price and manage the risk associated with their book of business, she said. According to the Center of Disease Control, heart disease, cancer and stroke are the three top causes of death in the United States and the vast majority of these cases are attributable to tobacco use, Miraglia said.

"Lung cancer is also one of the most common causes of death seen within the first few years that a life or health insurance policy is in force," she said. "These factors are taken into account when insurance companies establish the mortality and morbidity tables used to set rates."

Consumers should always shop around whether they are considered smokers or non-smokers. Depending on the carrier, the cost differential may vary anywhere from 0% up to 10%.

"It just depends on the carrier," Miraglia said. "There is no real evidence today associated with health outcomes related to e-cigarette use."

--Written by Ellen Chang for MainStreet

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