Finance – Charge More for Health Insurance for Employees that Smoke

Savings: $4.8 million

Currently, City employees who have health insurance through the City must contribute a percentage of their salary to help pay for the cost of this insurance.  The contribution rates are a percentage of the first $90,000 of each employee’s salary.  Employees who opt to have the health plan cover their dependents pay a greater percentage than those who have insurance only for themselves.

Under this option, the City would require employees and their dependents who smoke to contribute more for their healthcare costs.  For each employee or dependent who smokes, the City would charge employees $50 per month in addition to the current percentage of salary contribution.

Based on 2008 data, 67.5 percent of the City’s employees are enrolled in the City’s health plan.[1]   Currently, the City has 34,000 active employees.  Assuming the same percentage of employees is currently enrolled, there are currently approximately 23,000 employees participating in the City’s health plan.  Additionally, in 2008, there were 1.4 dependents enrolled for every City employee.  Assuming this ratio is the same today, currently there are approximately 32,000 dependents covered by the City’s health plan.   Together, an estimated 55,000 people are then enrolled in the health plan.  In 2008, 69 percent of enrollees in the health plan were 20 or older.  Assuming the current percentage is the same, approximately 38,000 current enrollees are 20 or older.[2]

The percentage of City residents who smoke is 21 percent.[3]  Assuming the percentage of City employees and their adult dependents who smoke is the same as the percentage of City residents as a whole who smoke, an estimated 8,000 enrolled health plan members smoke.  If the 8,000 health plan members who smoke were charged an additional $50 per month, the City would raise $4.8 million annually.

Because the health insurance contributions are part of the City’s Collective Bargaining Agreements (CBAs), implementing this option for all City employees would require changes to the current CBAs.

Proponents might argue that smokers consume more health care and thus cost the City more in terms of benefit payments.  Thus, it is fair to have them shoulder a greater burden of healthcare costs.  Additionally, they might point out that many large companies have adopted this practice in the last few years and Dallas County officials recently proposed increased employee contributions for County employees who smoke.[4],[5] Opponents might argue that this is an intrusion on the privacy of City employees.  Determining whether employees and their dependents smoke could require them to provide saliva, blood, or urine samples. Additionally, others might argue that smoking is more prevalent among lower income Americans[6], so this is likely a regressive way to raise revenue, meaning the City’s employees least positioned to pay more for health insurance would be forced to pay more.

Discussion and Additional Questions

A key consideration in deciding whether to implement this option is what goal the City hopes to achieve.  If the City’s goal is to raise revenue, then the City would be largely unconcerned with how increased contributions would impact the prevalence of smoking among City employees and their dependents.  Conversely, if the goal is to reduce the prevalence of smoking in the City’s workforce, then the City would be primarily concerned with determining how to raise the health insurance contributions of smokers in a way that would most induce them to quit or reduce smoking.  Some additional questions to consider when thinking about this option:

  • How much healthcare do City health plan members who are smokers consume compared to nonsmokers?
  • Is raising health insurance contributions for smokers more or less effective than cigarette tax increases or smoking cessation programs in reducing the prevalence of smoking?
  • Is a per-person surcharge more or less effective in changing smoking behavior than an increase in the percentage of salary contribution?
  • What contribution increase would generate the most revenue?

 Budget Details[7]

Dept: Finance General, 099 Bureau: NA
Fund: Corporate, 0100 Approp Code: For Health Maintenance Organization Premiums (HMO) Provided to Eligible Employees and Their Families, 0029

For the Costs of Claims and Administration for Hospital and Medical Care Provided to Eligible  Employees, Provided However, That All Payments to the Independent Utilization Reviewer Shall Be Subject to the Approval of the Chairman of the Committee on the Budget and Government Operations, 0042

Costs of Claims and Administration for Hospital and Medical Care to Eligible Annuitants and Their Eligible Dependents, 0052

The appropriation is located on page 254 of the 2011 Annual Appropriation Ordinance.

http://www.cityofchicago.org/content/dam/city/depts/obm/supp_info/2011BudgetOrdinance.pdf

 


[1] In 2008, 25,602 employees participated in the City’s health plan.  As of December 2008, there were 37,940 active employees.   This translates to 67.5% of the City’s workforce being in the health plan.

Sources: City Payroll System and City of Chicago. 2008 Blue Cross Enrollment Report. April 2009. pg. 5.

[2] We used 20 or older because that was how was the data available.  Ideally, we would use data for enrollees 18 or older, but this is not likely to have a large impact on the estimate.

[3] McCarthy, Brendan. “African-Americans in minority areas more likely to smoke.” Chicago Tribune. June 1, 2005.

http://articles.chicagotribune.com/2005-06-01/news/0506010204_1_cessation-smoke-cigarettes

[4] Huffington Post. “Corporations Tell Smoking Employee To Pay More For Health Insurance.” July 6, 2011.

http://www.huffingtonpost.com/2011/07/06/companies-tell-smoking-employees-to-pay-up_n_891498.html

[5] Krause, Kevin. “Health Insurance to become more expensive for Dallas County employees who smoke.” Dallas Morning News. September 9, 2011.

http://cityhallblog.dallasnews.com/archives/2011/09/health-insurance-to-become-mor.html

[6] Gallup. “Cigarette Tax Will Affect Low-Income Americans Most.” April 1, 2009.

http://www.gallup.com/poll/117214/cigarette-tax-affect-low-income-americans.aspx

[7] This budget option could be considered a savings that reduces the City’s spending on healthcare rather than a revenue generator.  The effect, however, is the same.