HHS OKs Penalizing Obese For Health Insurance 
Plans Can Charge Non-Obese and Non-Smokers Less

In a decision which could have a major impact on the war against obesity, the federal government has reversed a 1987 decision, and has just ruled that health insurance companies can now discriminate against the obese as a means of encouraging them to lose weight.  SEE RULING BELOW

More specifically, it ruled that all health insurance plans subject to federal jurisdiction may provide discounts or rebates to those who are not obese, and/or "modify copayments and deductibles" based on obesity, and that some companies could simply charge the obese more for the same insurance.

The decision came in the form of a letter ruling in response to a legal petition filed in June by public interest law professor John Banzhaf.

Banzhaf helped originate the first of five successful fat law suits, and he has emerged as a major spokesman for using legal action to fight against the epidemic of obesity, just as he successfully championed the use of legal action to fight against smoking.

"This decision provides an important, immediate, and direct financial incentive for the obese to lose weight, and finally permits insurance companies to do what they have been hoping to do.” For example, Aetna’s chief medical officer recently told an obesity conference that his company would like to offer obesity-related discounts, but didn’t because they were currently “illegal.”  See: http://www.techcentralstation.com/060404H.html

“The decision could also impose true personal responsibility on those who balloon health care costs for everyone," says Banzhaf. Since each obese person averages about $1500 a year in additional health care costs, and almost one in three adults is obese, most non-obese patients are forced to pay about $500 a year more in insurance premiums each year, or to receive $500 less in benefits under our current system, he says.

This new ruling would permit any health insurance company which applied to HHS to offer premium discounts and rebates – or different copayments and deductibles – for the non-obese, provided that four simple conditions were met.

"This ruling could have more of an educational effect than all of the government's obesity public service announcements. Every time a patient is told that his copayment or deductible is higher because he is obese, he receives a very forceful and direct reminder that his obesity has immediate consequences, and he is reminded in a health context that obesity is an important enough risk to warrant a higher rate just like smoking," says Banzhaf. Moreover, if he still doesn't get the message, his spouse is likely to because of the impact on the family budget, and encourage the obese individual to lose enough weight to qualify for the discount.

In 1987 the government ruled that health insurance companies could charge different rates to smokers and nonsmokers, a ruling it reaffirmed in its letter to Banzhaf. However, it held then that health insurance companies could not discriminate on the basis of obesity. That decision has now been changed "in light of the Surgeon General reports and other studies and your [Banzhaf's] request," wrote the Department of Health and Human Services.

"It will be very interesting to see if those who constantly claimed that 'personal responsibility' was the answer and a defense to fat law suits against food companies will now embrace a legal action which for the first time may impose true personal responsibility on these who let themselves become obese.”

Banzhaf said that although the decision refers only to federal law, it is quite likely that most states would follow suit, and that any that currently prohibit differential rates based upon weight will change their policy in light of the growing concern about obesity and this new governmental decision.

Professor of Public Interest Law
Dr. William Cahan Distinguished Professor
George Washington University Law School
2000 H Street, NW, Washington, DC 200006, USA
(202) 994-7229 // (703) 527-8418
http://banzhaf.net  http://banzhaf.net/obesitylinks

Letter Ruling by HHS to Prof. John Banzhaf

Permitting Discrimination in Health Insurance Rates
Based Upon Obesity

Department of Health and Human Services

SEP 28 2004

Centers For Medicare and Medicaid Services
Medicare Plan Policy Group
7500 Security Blvd.
Baltimore, MD 21244

Professor John F. Banzhaf III
Professor of Public Interest Law
George Washington University Law School
2000 H Street, NW
Washington, DC 20006

Dear Professor Banzhaf:

We are writing in response to your letter of June 7, 2004 , regarding Secretary Thompson's statement that the Department of Health and Human Services has not prohibited health insurance companies from charging obese individuals higher insurance premiums. You also asked that we allow a differential health insurance rate factor for obesity as a community rating class under section 1308(8) (C) of the Public Health Service (PHS) Act [42 USC 300e-1]. Please forgive the delay in our response.

This letter is to confirm the Secretary's response in the article you referenced and that based on our research States are not bound by federal statute in the case of permissible underwriting practices in the health insurance market they regulate.

In light of the Surgeon General reports and other studies and your request, we have undertaken a re-examination of the position CMS took in 1987 on the question of whether obesity could "reasonably be used to predict the use of health services" (the standard for approval as a community rating factor under section 1302(8)(C). While no Federally-qualified HMO has submitted such a factor for approval, triggering the approval process under section 1302(8)(C), we could theoretically permit Federally-qualified HMOs to use such a factor. This would mean that the HMO would be permitted under the Title XIII community rating rules to charge a higher premium to members classified as obese than the premium charged to otherwise similarly situated non-obese individuals.

However, even if we changed our 1987 position on obesity under the Title XIII community rating provisions, this would have a very limited effect in light of a subsequently enacted provisions contained in the Health Insurance Portability and Accountability Act of 1996 (HIPAA). Most Federally-qualified HMOs would be subject, for most of their members, to the HIPAA requirements that apply to employment-related "Group Market" health insurance. These provisions are found in Part A of Title XXVII of the PHS Act, as added by HIPAA. Section 2702 of the PHS Act is titled "Prohibiting Discrimination Against Individual Participants and Beneficiaries Based on Health Status." While being a smoker is a behavior, not a health status, arguably the condition of obesity is a health status.

Section 2702(b) (1) provides that a covered health plan:

"...may not require any individual (as a condition of enrollment or continued enrollment under the plan) to pay a premium or contribution which is greater than such premium or contribution for a similarly situated individual enrolled in the plan on the basis of any health-status related factor in relation to the individual. . ."

If we determined obesity to be a "health status" for purposes of the requirement in section 2702(b), a decision to reverse the 1987 CMS decision on obesity arguably would only permit Federally-qualified HMOs to consider obesity as a factor with respect to establishing its rates for its "individual market" members, to whom the provisions in section 2702(b) would not apply.

We also note that section 2702(b)(2) clarifies that the prohibition on discriminating based on health status does not prevent an insurer from using premium discounts or rebates, or modifying copayments and deductibles, "in return for adherence to programs of health promotion and disease prevention." The original HIPAA title I interim regulations, issued April 8, 1997 (62 FR 16894) asked for comment on how to implement this exception. HHS, along with the Departments of Labor and the Treasury later proposed, in a Notice of Proposed Rulemaking published January 8, 2001 (66 Federal Register 1421-1435), to limit this exception to those incentives provided pursuant to "bona fide wellness programs." In order to qualify as "bona fide," a wellness program would have to meet four criteria set forth in the NPRM.

The first would be that the cost of providing the discount can not exceed a specified percentage (proposed to be between 10-20%) of the cost of providing the coverage. Second, it must be reasonably designed to promote good health (and not simply a subterfuge for raising rates for certain individuals based on health status). Third, the incentive must be available to all similarly situated individuals, and if the way to qualify for the incentive is unreasonable or medically precluded because of a health factor for a particular individual, the individual must be offered an alternate way to qualify for the incentive. Fourth, plan materials must describe the availability of such alternatives.

Please contact Frank Szeflinski of my staff on (303) 844-7119, if you have any questions.


                            Thomas Hutchinson Director
                            Medicare Plan Policy Group