Computer Glitch Spares Smokers from Higher Insurance Rates

The Obama administration has advised health insurers that a computer glitch will limit the penalties insurers can charge smokers under the Affordable Care Act, the New York Times and other outlets report.

Health insurance exchanges will open October 1, but the system problem will reject plans that aim to charge older smokers more than younger policyholders. As the Times article explains:

According to a June 28 guidance from the government to insurers quoted by The A.P., “Because of a system limitation … the system currently cannot process a premium for a 65-year-old smoker that is … more than three times the premium of a 21-year-old smoker,” the guidance said. If an insurer tries to charge more, “the submission of the (insurer) will be rejected by the system,” it added.

Ms. Peters said in her statement that the problem is temporary. For 2014 only, “tobacco ratings across age groups cannot produce premiums that are more than a three-to-one ratio,” she said. “In 2015 and beyond, the system will expand to allow issuers to increase this ratio, if they choose to do so.”

The reason for the glitch? Even though a smoker can be charged up to 50% more than a non-smoker in the same age group, insurers can't charge older customers more than three times the amount they charge a customer in a younger age group. Basically, a 60-year-old smoker can be charged 50% more than a 60-year-old non-smoker — but the software sees that the potential policyholder can't be charged 201% more than a 30-year-old, and if the math doesn't add up, the plan will be rejected.

How will insurers work around the glitch? It's possible that older smokers could simply get a reprieve from higher premiums — but it's equally likely, as the Times suggests, that younger smokers' costs could increase as a result: "The glitch could mean that insurers could charge all smokers the maximum allowable surcharge to get around the ratio problem, which would end up penalizing younger smokers with higher penalties than they might otherwise have received. But it is unclear what insurers will do."

Nathan Golia is senior editor of Insurance & Technology. He joined the publication in 2010 as associate editor and covers all aspects of the nexus between insurance and information technology, including mobility, distribution, core systems, customer interaction, and risk ... View Full Bio