hhsfatpet

Before the Office of the Secretary

DEPARTMENT OF HEALTH AND HUMAN SERVICES

200 Independence Avenue, S.W., Washington, DC 20201

In the Matter of Charging Different Health Insurance |

| _________________________

Premiums For Obese and Non-Obese Persons |

Formal Petition Seeking a Reversal, Modification, or Repudiation of a 1987 Decision of the

Department of Health & Human Services, Health Care Financing Administration,

Prohibiting Health Insurance Companies from

Charging Different Health Insurance Premiums for Persons Who Are Obese

Petitioner, for the reasons briefly stated herein, respectfully seeks reversal of a decision by the Department of Health and Human Services, believed to still be in effect, which prohibits health insurance companies from charging obese persons different premiums for health insurance coverage.

BACKGROUND

In 1984 Petitioner John F. Banzhaf III, a professor of public interest law, prepared a report at their request for the National Association of Insurance Commissioners [NAIC], an organization made up of public officials who regulate insurance. The NAIC had requested the report because it had discovered a very important change in the health insurance industry.

Since the invention of health insurance, all customers had been charged the same rate. This tradition apparently developed because, during the early days of health insurance, most of the illnesses which gave rise to health insurance costs were caused by germs, viruses, and other causes over which customers had little or no control. Therefore it was seen as both appropriate and fair for all customers to be charged the same rates for the same basic health insurance.

However, even as early as 1984, the NAIC’s own research had indicated that fully 60%-80% of all health care costs were caused not by germs, viruses, etc., but rather by behaviors over which the individual customers had control. These unhealthy behaviors included smoking, being overweight, abusing alcohol and/or illegal drugs, failing to wear seat belts, getting insufficient exercise, etc. The NAIC therefore wondered whether it would be appropriate, fair, workable, and legal for insurance companies to charge different rates based upon one or more of these factors.

Petitioner Banzhaf set out to answer that question, and presented his report to the NAIC. In response, the NAIC in 1984 adopted a resolution encouraging health insurance companies to provide “financial incentives such as premium differentials” for: [A] “non-use of tobacco products,”[B] “attainment of proper weight,” and [C] “maintenance of blood pressure within proper limits” [e.g., taking appropriate medication once high blood pressure was diagnosed]. This basic principle of differential rates was reaffirmed in a subsequent resolution by the NAIC in 1987.

Based upon his analysis, and upon the two NAIC resolutions, Petitioner Banzhaf presented arguments for providing discounts to nonsmokers at the Second Annual Blue Cross and Blue Shield Health Risk Management Conference in Washington D.C. held on May 7-9, 1987. The conference title was “Controlling Costs Through Prevention: Creating Incentives for Better Health.”

Shortly thereafter, and apparently as a result, HHS’s Health Care Financing Administration was asked to approve a proposal that “certain lifestyle factors be considered the basis for community rating by class” [i.e., provide a basis for different health insurance rates]. In a letter dated on or about July 6, 1987, [COPY ATTACHED] Don Kollmorgen, Director, Division of Compliance, Office of Prepaid Health Care, Health Care Financing Administration, wrote:

In my letter of June 2, I indicated that the Office of Prepaid Health Care could not approve lifestyle factors as predictors of the utilization of health care services. After discussing the issue in depth, I am prepared to approve the single lifestyle factor of smoking as a basis for community rating by class. The other two proposed lifestyle factors of hypertension and weight remain unapprovable at this time.

CURRENT SITUATION

In compliance with that ruling, a small but apparently growing number of health insurance plans now do offer lower rates for nonsmokers, similar to the lower rates usually offered to nonsmokers by life insurance companies. Such rate differentials have not been challenged and appear to be generally accepted. This has occurred even though smoking is regarded as addictive, and therefore less capable of being readily controlled, than overeating, which is generally regarded as not being addictive, and failure to exercise, which is even more clearly subject to individual control. Such differential rates also appear to be one factor in causing a decline in smoking

But, so far as Petitioner is aware, health insurance companies do not offer similar differential rates based upon obesity because of the belief – reinforced by this ruling – that it would illegal to do so. At the same time, Secretary Tommy Thompson has been frequently quoted in the press as favoring different insurance rates for the obese in order to provide a direct financial incentive for people to lose weight, and to serve as a powerful educational tool to encourage them to do so.

However, it appears that HHS has never reversed or even modified this decision – a factor which probably leads many companies to believe that it would be illegal to charge different premiums for health insurance based upon obesity. In addition, HHS appears to be giving misleading information to the media regarding the legality of insurance plans which charge lower insurance premiums for people who are not obese. The ATTACHED is only the latest example:
SEE: http://www.techcentralstation.com/060404H.html

Charging everyone within a group plan the same amount for health insurance removes an important financial incentive to stay healthy, and forces fit people to subsidize health care for the not-so-fit. . . .

The problem is that though several health care policy experts told me they were certain health insurers were barred from such "medical underwriting," no one could say exactly why. In fact, I talked to several health insurance companies themselves, and none could point to any specific law, regulation, or case law laying out the prohibition. I even called tort king John Banzhaf, who -- believe it or not -- is actually on record supporting lower premiums for fit health care consumers, though only as it applies to obesity and blood pressure. [INCORRECT]

Banzhaf told me the bar stems from a mid-1980s ruling by the Department of Health and Human Services at the request of health insurance commissioners. The commissioners [sic] had asked HHS to allow higher premiums for smokers, overweight and obese people, and those who don't take basic steps to reduce high blood pressure. HHS, Banzhaf said, okayed the smoking provisions, but balked on obesity and blood pressure.

The problem is that I couldn't find any independent confirmation of Banzhaf's explanation. That in mind, I sought out and got a few minutes to
speak with HHS Secretary Tommy Thompson after he spoke to the Obesity Summit on Wednesday evening.

"Do you know why it is that health insurers can't charge lower premiums to reward people who stay fit?" I asked.

"No," Thompson said. "I absolutely support the idea. I think they should do it."

"There's no law preventing it?"

"Not that I'm aware of. We'd heard there might be something preventing it when I first took office. But I had my counsel's office look into it, and we don't see any reason why they can't do it. And we think they should." [emphasis added]

After the panel, I asked Popik [Dr. William Popik, the Chief Medical Officer for Aetna, Inc.] why Aetna and other insurers hadn't even considered moving beyond corporate incentives, and moved toward individual incentives. That is, charging individuals different premiums -- even within group plans -- based on risk.

"Because it's illegal," he said.

I told him about my conversation with Secretary Thompson.

"That's very interesting," he said. "Our lawyers have told us it's not legal. If HHS says otherwise, maybe our people need to call the people at HHS."

REASON FOR THE INSTANT PETITION

Thus, it appears that although the Secretary of HHS has now concluded that differential health insurance premiums can be an important tool in fighting not only the epidemic of smoking but also the newer epidemic of obesity, this major stumbling block still remains, and is likely a factor in causing some concern if not confusion. Moreover, while the Secretary has publicly praised the concept, Petitioner is unaware of any clear public statement by the Secretary or anyone else in the Department unambiguously stating that such polices are not only beneficial but also lawful.

It therefore seems to be an entirely appropriate time for HHS to publicly announce that it is reversing its earlier decision and/or that it is no longer controlling, and that such obesity differentials are not only legal but desirable. This Petition urges such action, and provides an appropriate catalyst for the Department to finally take it now to prevent further confusion.

REASONS FOR PERMITTING DIFFERENT INSURANCE RATES FOR OBESITY

Certainly the underlying philosophy – and many of the factual underpinnings and arguments – for charging the non-obese less for medical insurance are the same as for changing lower premiums for nonsmokers. They are the same arguments which were accepted and endorsed twice by the National Association of Insurance Commissioners [NAIC] two decades ago.

They also support the differential rates based upon tobacco use which are now being charged by many health insurance companies – and by virtually all life insurance companies. All of these facts and arguments are included in a reprint from the SMOKING AND HEALTH REVIEW, a copy of which is ATTACHED, and are incorporated herein by reference. Therefore, this portion of the Petition will primarily briefly set out additional arguments related to obesity.

The primary reasons for HHS’s different treatment of smoking and obesity in 1987 – permitting differential health insurance premiums for smoking but not for obesity – are easy to see, and dramatic changes in both society and our medical knowledge since then provide more than ample justification for reversing that distinction and permitting them both to be valid insurance factors.

By the early 1980's, several Surgeon General’s reports had condemned smoking as a major public health problem which killed many hundreds of thousands of Americans each year and cost the American public more than $100 billion a year – most of which was paid by nonsmokers in the form both of higher federal and state taxes, but also in escalating health insurance premiums. Moreover, the public readily accepted smoking as a public health problem rather than as an individual matter, and clamored for any measures which would help contain the very expensive epidemic.

In contrast, in 1987 there were no Surgeon General’s reports of obesity, and virtually no estimates or even appreciation of the costs of obesity in lives and dollars. It was not then seen as a public health problem, and there was little public demand for actions which would reduce obesity. In short, it was seen as an entirely different problem (if it was seen as a problem at all) of an entirely different magnitude, and the public would not be likely to accept different health insurance rates for obesity as it did for smoking. In short, HHS’s decision and distinction were valid at the time.

But by the end of 2001, the situation had clearly changed. The Surgeon General reported that obesity was by now an epidemic and a major public health problem which killed about 300,000 Americans each year – a number almost as great as from smoking, and far more than from alcohol abuse, motor vehicle accidents, crime and guns, AIDS, and illegal drugs COMBINED.

Moreover, the Surgeon General reported that obesity cost the American public more than $115 billion a year, a number even more on par with smoking. Subsequent studies showed that, as with smoking, most of the costs was borne by persons who were not themselves at higher risk. Clearly today the public is far more concerned about obesity than in 1987, and is demanding that effective measures be taken now in light of the vastly enlarged problem.

Part of this is because the problem of obesity has captured the attention of the public and the media to an extent which probably even exceeds smoking. Part of this may also be because experts predict that – unlike smoking, which is finally slowly declining – obesity is on the rise and will soon surpass smoking as the number one preventable cause of death, disease, and disability, and as the major cause of totally unnecessary health care costs. Part of the growing public concern also arises because – unlike with smoking – so many of the deadly consequences are occurring to innocent young children. As just one example, the Centers For Disease Control now tells us that one in every three children will come down with diabetes; once a relatively obscure disease, and one which not only dramatically increases the risks of death and disability, but often leads to kidney failure requiring dialysis, to amputations, blindness, and other very serious and expensive consequences.

Still another reason why attitudes have changed so much is the public recognition that problems which at first glance may seem to be solely a matter of personal choice such as smoking and overeating may in fact be significantly affected by many external measures which go far beyond the traditional approach of public education. The public – having seen how the epidemic of smoking is now finally being brought into check by measures like higher health insurance premiums for smokers, higher taxes, restrictions on advertising, required health warnings, etc.– is willing to accept if not demand that similar measures also be taken with regard to the obesity epidemic.

KEY DIFFERENCES BETWEEN RATES BASED UPON SMOKING AND OBESITY

Indeed, higher health insurance rates for the obese can be supported in several ways even more strongly than similar differential rates based on smoking. For example, a key justification for charging different rates for any health factor is that the higher rates will tend to discourage an unhealthy life style and thereby reduce health care costs. But it is now recognized – as it was even in 1987 – that nicotine can cause addictions of various degrees of strength in many people who smoke. Therefore, at least in some cases, their ability to modify their behavior is circumscribed. In contrast, no such similar addictions are today recognized with regard to eating, and therefore the behavior should be more easily modified by the financial incentive of insurance premiums than is smoking.

A second minor problem regarding lower insurance rates for nonsmokers is the concern that smokers will lie about their behavior to obtain lower rates. This does not seem to have occurred for several reasons. First, most people tell the truth about tobacco use on surveys and applications – even though they are not likely to confess with regard to alcohol abuse, use of “recreational” drugs, failure to use condoms, etc. – because their status as smokers is so well known to their co-workers and friends that any lie would easily be discovered. Second, people are honest because one’s status as a smoker can be crucial in a physician’s diagnosis, prescription of drugs, etc. Third, most physicians can generally tell a smoker by the smell of tobacco smoke on his breath and/or clothing. Fourth, tobacco use can be easily determined by a simple blood, urine, or saliva test.

But this is even less of a problem – if it is a problem at all – with regard to obesity. Physicians routinely weigh patients and record their height, so that it is very simple matter to determine whether one is obese even without trusting to the patient’s honesty, or using arguably intrusive tests. Indeed, the very fact that such differential insurance rates will encourage if not require doctors to weigh patients more often is likely to strongly encourage the obese to lose weight.

In summary, all of the many reasons set out in the attachment in support of different rates for smokers also support different rates for the obese, and several key differences add extra strength to the argument for lower rates for those who maintain a healthy weight.

ADDITIONAL CONSIDERATIONS RE A REVERSAL OF THE OLD RULING

In announcing a reversal of the old ruling, it is respectfully suggested that care should be taken to avoid painting the higher rate for obese persons as a punishment or a penalty, or simply as a bonus for thin people. People readily accept that higher premiums must be paid by smokers for life insurance (and apparently also for health insurance), by persons with high-risk cars and homes for automobile and homeowners’s insurance, etc., and obesity rates are simply a logical extension.

Failure to make the obese pay their fair share of health insurance costs forces those who maintain a healthy weight to be unfairly burdened with these huge costs. Based upon the estimate that obesity adds about $1500 a year in individual health care costs, and that almost one in three adults is obese, the majority of non-obese Americans annually pay almost $500 more in premiums because of this unfairness. Thus much higher premiums for the obese can be actuarially justified – although in reality a smaller differential will probably be utilized and prove to be very effective.

The Secretary may also wish to stress that a lower rate for the non-obese is likely to have a major impact of obesity rates and medical costs for at least two reasons. The first is that it will provide, for the first time, a significant and tangible financial incentive for people to maintain a healthy weight. Vague and generalized warnings about possible health consequences in the future are for many people far less effective than direct and immediate financial disincentives. That’s why we have higher taxes on tobacco products and alcoholic beverages, and fines for driving while intoxicated.

Also, such differential rates will also have a major educational effect, one probably more effective for most people than rarely-seen generalized public service announcements. A monthly bill for the added health insurance premiums attributed to obesity, or even a yearly reminder that those with healthy weights are paying less, will have a major and continuing educational impact. In the case where an insured has a non-obese spouse, the spouse’s complaints about the unnecessarily high health insurance premium will also serve as a very persuasive educational reminder.

To avoid any argument that higher rates for the obese are unfair for people whose BMI is high only because they are excessively muscular, insurance companies should be encouraged to allow those rare individual to prove – with caliper tests, impedance measurements, and by other simple and inexpensive means – that their percentage of body fat falls within a healthy range even if their heavy bones or excessive musculature causes them to have a high BMI. Similarly, some allowance may be made for women whose BMI is excessive only because of pregnancy.

Finally, although perhaps unnecessary [see infra], it might also be appropriate to exempt persons who can demonstrate with appropriate medical tests that they are obese only because of a glandular condition or similar medical problem. The number of such persons is believed to be very small, but such a provision may reduce any uninformed objections to the different obesity rates.

Rather than the very considerable delay which would result if HHS were to seek to provide regulations governing such plans, it is respectfully suggested that it simply reverse the old decision and permit companies to experiment – as they did with smoking – and to deal with the matter only if there seem to be clear abuses AND if state insurance regulators cannot deal with the problems.

PETITIONER’S LEGAL OBSERVATIONS AND ARGUMENTS

The NAIC’s model unfair trade practices act, substantially in effect in virtually every state, prohibits only “unfair discrimination between individuals of the same class and essentially the same hazard.” But where there are two different classes with very different hazards – as between smokers and non-smokers, or the obese and those of healthy weight – there would appear to be no “unfair” discrimination. As one court put it, “it has never been claimed that large risks should always be charged at the same premium rate as small ones.” Hardware Mutual Casualty Co. V. Preme, 217 A.2d 705 (l976). [emphasis added]

Another court reminded us that insurance “to some extent always involves discrimination, to a large degree based upon statistical differences.” Thompson v. IDS Life Insurance Co, 459 P.2d 510 (1976). To this Petitioner notes that the statistical evidence that the obese have grossly excessive health care expenses is already overwhelming, and will be very quickly confirmed once even a few large companies put this practice into effect for a few years or even review their expenditures over past years for patients whose height and weight show them to be obese.

Several states have laws which expressly permit if not encourage that consideration be given to “past and prospective loss experience and any factors reasonably attributable to the class of risk.” Other statutes provide that“such standards [for insurance rates] may measure any differences among risks that can be demonstrated to have a probable effect upon losses or experiences.” Under these statutes, then, any behavior which substantially increases the risk can legally be made the basis for a rate differential; and the larger the risk and the more clearly established it is, the stronger the legal basis. Obesity obviously meets these tests,

An analysis made in 1984 – and almost certainly still true today – showed that courts have consistently upheld insurance classifications and rate differentials based upon demonstrated differences in risk and loss experience, and have overturned them only when they cannot be justified, or when the risk factor is a proxy for some other factor(s). As still another court so elegantly put it, “to increase the premium for taking the [greater] risk . . is not a discrimination, but a reasonable difference. If a higher premium for an increased risk were made unlawful, a person whose health is thus impaired could get no insurance.” Reeves v. New York Life Ins. Co., 421 S.W. 2d 686 (Tex. Civ. App. 1967), quoting Hilson v. Sun Life Assurance Company, 132 F.2d 989 (5th Cir. 1943).

At least two court decisions, in fact, go even farther, and suggest that it may be illegal for an insurance company to fail to base rates on a clearly established difference in risk.

In the first, the court approved a fire insurance rate system which charged different rates to insureds in different jurisdictions based upon the different loss experiences in the areas. It said that a system which did not provide for different rates would be “unfairly discriminatory in favor of the owners of Philadelphia property and against the owners of property in the rest of [Pennsylvania],” Insurance Dept. v. City of Philadelphia, 173 A.2d 811 (1961). [emphasis added]

In a second case, a state insurance commission denied 21 rate classifications proposed by Blue Cross of Kansas. The court reversed, saying that “failure to subsidize was found by the commissioners to result in rates which were unreasonable, excessive or unfairly discriminatory. It appears that the opposite might be true.” Blue Cross of Kansas v. Bell, 607 F.2d 498 (1980).

In other words, the very feature of the plans which caused the insurance commissioner to reject them – their failure to charge uniform rates so that those at lower risk would be forced to subsidize those at higher risk – was what the law in fact required. Thus, by inference, plans which did not charge different rates for clearly different risks – e.g., for the obese and non-obese – could themselves be considered unreasonably or unfairly discriminatory.

In summary, then, it appears that courts will uphold rate differentials which can clearly be justified, and which are not based upon immutable characteristics (like race) nor upon proxy factors. Moreover, there is at least a strong suggestion that it may be illegal NOT to establish rate differentials between different classes with clearly demonstrated different risks.

CURRENT LEGAL POSITION OF THE DEPARTMENT OF HHS

Further support for the Petitioner’s contention that HHS should formally as well as publicly reverse and disavow its apparently-still-controlling ruling that health insurance plans can’t provide a discount for customers who are non-obese come from a very knowledgeable, highly placed, and presumably unimpeachable source, HHS’s General Counsel’s Office [ATTACHED]: SEE: http://www.techcentralstation.com/060404H.html

After my conversation with Popike, I called the general counsel's office at HHS. Deputy General Counsel Paula Stannard walked me through every possible federal barrier to medical underwriting, and explained why they don't apply.

In fact, in 2001 the Depts. of HHS, Labor and the Treasury (in predictable federal bureaucratic confusion, the three agencies share jurisdiction over the issue) proposed a regulation (66 Fed. Reg. 1421) insisting that the convoluted HIPAA (Health Insurance Portability and Accountability Act) regulations be interpreted to allow health insurance companies to underwrite risks.

In fact, Stannard said that Title III of the Americans with Disabilities Act (ADA), the section addressing public accommodations, explicitly allows health insurers to make distinctions in writing premiums, exempting them from the ADA's purview. And an Equal Employment Opportunity Council (EEOC) interim guidance issued in 1993 says the ADA isn't applicable to employer-provided health insurance.

Stannard added that despite what you hear about outrageous ADA lawsuits, the relevant case law has not included obesity among ADA-protected disabilities.

So HHS, the EEOC, the Departments of Labor and Treasury, and the courts have all said our health insurers should be free to assign risk in the same manner car and life insurers do.

Yet the health insurers, for whatever reason, still seem to think they can't.

Thus there now seems to be universal agreement between HHS, Labor, Treasury, the NAIC, numerous state statutes and judicial opinions, and many others that HHS’s earlier opinion no longer correctly states either the law or the current policy of HHS. This petition therefore presents an appropriate opportunity for the Secretary and HHS to overrule and disavow it, and to state in a very clear way to the industry and to the public that health insurance companies are at least free to experiment with discounts for the non-obese, and perhaps should even be encouraged to do so.

SUMMARY

In 1987 HHS’s Office of Prepaid Health Care, Health Care Financing Administration, issued a ruling in which Petitioner played a major role. It ruled that it would be impermissible for companies to charge the obese more for health insurance, although it permitted such a health premium differential based upon smoking. This determination apparently has never been overruled.

The Secretary, who may not be aware of this ruling, is being quoted as stating that there are no legal impediments for charging higher insurance rates to persons who are obese. This statement may be misleading or at least confusing, since the above ruling appears to still be in effect, and many insurance companies reportedly believe that such differential rates would be illegal.

Since HHS, Labor, Treasury, the National Association of Insurance Commissioners, and numerous state statutes and judicial opinions all now apparently agree that charging different rates for the obese would be lawful, and since health insurance companies have successfully and without challenge begun to charge different rates for smokers, it seems timely for HHS to take action.

This Petition requests the Secretary of HHS and/or some appropriate subdivision to overrule the above cited ruling to the extent that it still remains in effect and/or to clearly state that it is no longer in effect. As part of that announcement, it is respectfully requested that HHS announce in a clear and unambiguous manner that such differential rates based upon obesity are entirely lawful. Such an announcement will go a long way towards clearing up this apparent confusion and uncertainly.

Petitioner further respectfully suggests that the Secretary publicly recommend that insurance companies provide such an incentive to help reduce the unnecessary health care costs caused by obesity. A further step would be for him to urge the Office of Personnel Management to require (or at least recommend) that companies which provide health insurance to federal employees through the Federal Employees Health Benefits Program [FEHBP] offer such an incentive.

Respectfully submitted,

John F. Banzhaf III

Professor of Public Interest Law

George Washington University Law School

2000 H Street, NW, Washington, DC 20052

(202) 994-7229

Monday, June 7, 2004