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Tobacco Surcharge 101

July 25, 2023
By Pivot
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70% of people who smoke want to quit. Employers often implement surcharges for people who smoke as an incentive to help them quit, which can sometimes be seen as a financial benefit to the organization. The financial savings from assisting an employee in successfully quitting far outweigh the benefits from a surcharge, not to mention the positive impact on the lives of employees who smoke.

What is a tobacco surcharge?

A tobacco surcharge is exactly what it sounds like. It adds a charge or fee to a tobacco-using employee's monthly health insurance premium. There is no additional cost to the employer, just the employee. 

Why do employers implement tobacco surcharges?

As part of the Affordable Care Act (ACA), the addition of tobacco surcharges was developed to decrease tobacco use and offset the significant additional healthcare costs associated with tobacco use. 

As a way to promote employee well-being, reduce smoking-related illnesses, offset raising healthcare costs, and create a healthier work environment employers have the option to implement a tobacco surcharge. 

How much can an employer charge an employee who smokes?

Under the ACA, group health plans (and self-insured employers) can charge up to 50% more to people who smoke than non-tobacco users for their monthly healthcare costs.

On average, employer-sponsored health coverage costs a single person about $111 a month before any subsidies, meaning the average surcharge is around $55/month. Multiply this by 12 months, which adds up to $660 a year out of an employee who smokes pocket - significantly impacting their finances and financial wellness goals.

Unfortunately, tobacco prevalence data indicates that people with lower education and lower income use tobacco at higher rates. Budgets that need to go to housing, education, childcare, nutrition and healthcare needs go instead to tobacco.

Do employers spend more on healthcare for employees who smoke?

It’s estimated that employers spend an additional $4,000/year in healthcare costs on each employee who uses tobacco. This is due to tobacco's direct correlation and negative impact on the most costly chronic conditions. Individuals also end up spending more on healthcare costs and the cost of tobacco products themselves.

How do employers know who to apply a tobacco surcharge to?

The majority of employers rely on employees to self-report tobacco usage. However, Pivot’s research shows that 69% of employees who smoke avoid sharing this information with their employer. This means they are often not engaging with health benefits due to the stigmas associated with smoking. At Pivot, we believe creating a culture of psychological safety and offering compelling tobacco-cessation solutions can encourage employees to utilize their benefits and ultimately quit.  

What is a Reasonable Alternative Solution?

When a company decides to add a tobacco surcharge, it must ensure that each employee who uses tobacco has access to a reasonable alternative solution (RAS) to remove the surcharge. An individual does not need to quit tobacco to meet an organization’s reasonable alternative requirements.

Reasonable Alternative Solution options

RAS requirements can vary significantly from one organization to the next.

Companies can institute various options to meet this requirement, and combinations vary based on the support the organization has from a vendor or internal resources. Some options include:

  • A tobacco cessation program
  • Nicotine Replacement Therapy (NRT)
  • Health Coaching
  • Prescription medications
  • General wellness programs
  • Education resources
  • EAPs

While all of these options can provide support and valuable information, not all provide the holistic support and comprehensive behavioral change approach needed to help people quit successfully. Solutions like Pivot Breathe, the leading tobacco cessation program, have the opportunity to make the impact you are looking for.

Picking a RAS

When assessing the RAS options available to comply with ACA’s requirements to implement a tobacco surcharge, there are a few aspects that will help the program and company goal:

  1. Utilization: Ensure a high level of enrollment and use of the offering
  2. Quit Rates: Provide an offering that has a proven history of supporting people in their attempt to reduce or quit tobacco

This combination will be a win-win for your employees and your organization.

Help your employees remove their surcharge

What feels like a simple step can snowball into significant positive outcomes. By enrolling in an RAS, an employee takes a step in the right direction toward quitting. By reducing or quitting tobacco, they will start noticing significant improvements in their health. These improvements in their health add up and are linked directly to costly chronic conditions and rising healthcare costs for both an organization and an individual. 

By providing more employees the ability to reduce or quit with a comprehensive tobacco cessation solution, like Pivot Breathe, you will help them reclaim their lives and reduce healthcare costs for each employee who quits.

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FAQs About the Tobacco Surcharge

What is the main purpose of a tobacco surcharge?
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The main purpose of a tobacco surcharge is to encourage a decrease in tobacco use, offset the additional healthcare costs related to tobacco, and promote a healthier work environment by adding a charge to a tobacco-using employee's health insurance premium.

How much can employers charge smoking employees due to the tobacco surcharge under the ACA?
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Under the ACA, employers can charge tobacco users up to 50% more than non-tobacco users for their monthly healthcare costs, which, on average, is around $55/month or $660 a year.

Do employees who use tobacco cost their employers more in healthcare expenses?
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Yes, employers spend an estimated additional $4,000/year in healthcare costs for each employee who uses tobacco due to its negative impact on costly chronic conditions.

How do most employers determine which employees should receive a tobacco surcharge?
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Most employers rely on employees to self-report their tobacco usage. However, research indicates that a significant portion (69%) of smoking employees avoid disclosing their tobacco use to their employers.

What is a Reasonable Alternative Solution (RAS) in the context of tobacco surcharges?
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A Reasonable Alternative Solution (RAS) is an option provided to employees who use tobacco to remove the surcharge without necessarily quitting tobacco. RAS solutions can include tobacco cessation programs, Nicotine Replacement Therapy, health coaching, prescription medications, and general wellness programs. The aim is to support employees in reducing or quitting tobacco.

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Ready to take a step in the right direction?

Pivot Breathe helps employees on their journey to reduce or quit tobacco - and remove their tobacco surcharge.

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