Insurers' Flexibility in Setting Tobacco Surcharges Under ACA Revealed

Strategic Insights -

Researchers from California State University have published a study on the Affordable Care Act's (ACA) permit for insurers to vary health insurance premiums based on certain factors, including tobacco use. The study, titled "Rate-Making, Smoker Surcharge, and Insurer Risk Management Under the U.S. Affordable Care Act," investigates how insurers can devise tobacco surcharges to manage objective risk and their premium price implications. According to the study, insurers have significant latitude to apply tobacco surcharges within and perhaps beyond the intent of healthcare reform, as long as the state they operate in does not prohibit it or reduce the federal cap.

Key Takeaways:

  • The Affordable Care Act permits insurers to vary health insurance premiums based on age, geographic location, family coverage, and tobacco use, but with certain limitations.
  • Tobacco use as a rating factor in setting insurance premiums cannot exceed 50% of the non-smoker rate.
  • Insurers have significant latitude to apply tobacco surcharges within and perhaps beyond the intent of healthcare reform.
  • State regulations do not appear to restrict or diminish this flexibility, allowing insurers to manage objective risk and their premium price implications.
  • The study uses the federal standard age curve of the CMS and insurer rating schedules to develop illustrations of multiplicative and additive rate structures of the tobacco surcharge.
  • Insurers can apply tobacco surcharges in a way that may be more restrictive than the federal standard age curve.
  • The study does not find any evidence that the risk-related and public policy consequences of modified community rating for smokers are addressed by way of conclusion.
  • The research suggests that insurers can manage objective risk and their premium price implications by devising tobacco surcharges that are not necessarily related to the actual cost of smoking.

Statistics:

  • 50%: The maximum percentage of the non-smoker rate that tobacco use as a rating factor in setting insurance premiums can exceed.
  • 9(3): 17-33, 2025: The journal article reference number and page range.
  • $10.61093: The DOI for the journal article.
  • https://doi-org.sdpl.idm.oclc.org/10.61093/fmir.9(3).17-33.2025: The URL for the free version of the journal article.

Sources:

  • NewsRx. California State University Researcher Yields New Study Findings on Financial Markets (Rate-Making, Smoker Surcharge, and Insurer Risk Management Under the U.S. Affordable Care Act). Health Insurance Week. November 2, 2025; p 37.
  • "Rate-Making, Smoker Surcharge, and Insurer Risk Management Under the U.S. Affordable Care Act". Financial Markets, Institutions and Risks, 2025,9(3):17-33.
  • Centers for Medicare & Medicaid Services (CMS)
  • Academic Research and Publishing UG