IMPACT OF PRICE INCREASES ON CIGARETTE AND ALCOHOL CONSUMPTION
In the July 11 issue of the New York Post, there was an article which highlighted the fact that the number of calls to the New York City 311 hotline requesting city service support for smoking cessation has tripled with the increase in taxes that have made a pack of cigarette cost around $10 in some communities.
I have always believed that cigarette and alcohol consumption could be cut significantly by increasing the price of these items. For hard-core addicts, price increases are probably less effective, except for those already predisposed to quit. But high prices are clearly a deterrent to those who are considering starting to smoke or drink, and, over time, reducing the health and other costs of cigarette smoking and alcohol abuse will reap large dividends in reducing the incidence of chronic and acute health conditions.
At Pitney Bowes, we have attempted to put in modest wellness incentives in our health plans by having differential premiums between smokers and non-smokers. Unfortunately, the U.S. Departments of Health and Human Services, Labor, and Treasury jointly issued a regulation on December 13, 2006, which severely limited wellness incentives in self-insured health plans. (See Department of Treasury 26 CFR Part 54, Department of Labor 29 CFR Part 2590, and Department of Health and Human Services 45 CFR Part 146). This is a very misguided regulation, which apparently was issued in the context of preventing discrimination in health plans based on “medical conditions.”
Our incentive is not based on conditions, but behaviors, but the federal government has inexplicably concluded that if a premium differential based on behaviors is high enough, it would constitute illegal condition-based discrimination. From reading the regulation and the summary of the comments, I believe that there was no rigorous analysis of the benefits of different levels of incentives, and there appears to have been a unscientific conclusion that an incentive in excess of 20% for people engaging in wellness behaviors would be a coercive penalty for those who do not.
The fundamental question is why we should not be “coercive” to penalize individuals who can change behaviors that cost others significant amounts of money, but choose not to do so. Even with a 50% or 100% wellness “penalty” for those who do not take advantage of wellness incentives, these individuals usually incur chronic disease expenses far in excess of what the “penalty” would constitute. If their behavior were a recognized violation of other people’s rights and it was a result of gross negligence or even simple negligence, they would be liable for 100% of the cost they imposed on others.
The implication of this kind of limitation is that government officials essentially do not believe that destructive lifestyle behaviors are either negligent or controllable. They do not want the individuals engaging in these behaviors to be responsible for the full consequences of the behaviors. Ultimately, we need a more open and candid discussion of the rationale for this decision, and a challenge to the government officials who made it.
Nevertheless, to the degree that states or other taxing authorities can follow what New York City did, they will have performed a valuable public service in both discouraging destructive behaviors, and making those who continue to engage in them absorb more responsibility for the public and private insurance health costs they cause.
On a related note, I was pleased to see that Progressive Insurance is offering discounts for those drivers who agree to put GPS systems in their automobiles to track time, location, and manner of driving. Progressive announced this program a few weeks ago, and noted that probably 2/3 of its automobile policyholders who participate will see premium reductions. This is the right approach, because it will make those who drive recklessly pay more, rather than having broad categories of people, like young men between the ages of 16 and 24 pay more. Within that broad category, there are undoubtedly big differences in driver quality and those differences should be recognized.
I do not want anyone to think that I favor discrimination in insurance rates based on medical conditions, because that is unfair. However, changeable and risky behaviors should be discouraged through insurance plans and governmental fees and taxes, and those who engage in them should be responsible for more of the consequences of those behaviors.
July 15th, 2008 at 6:27 pm
Dear Sir: Excellent column! Very hard to find someone who actually feels the same as I do. Yes, I agree, that price increase may in fact, help somewhat, to prevent as MUCH alcohol consumption. But even then, who knows!
Many of us are trying to have the Governments force liquor manufacturers to have large health warnings on all containers, for reasons that I’m sure you are aware of.
If you would like to read my story, simply let me know & I’ll e-mail to you.
Being a Legal substance, easily obtainable, & very well accepted, makes it more than attractive to say the least !
Thankyou.