It doesn't make sense to charge fat people higher insurance premiums.

The state of the universe.
Oct. 29 2009 4:14 PM

The Fat Premium

Congress toys with a silly plan to make Americans lose weight.

Read more of Daniel Engber's columns on obesity and health care reform.

Scale. Click image to expand.
The perils of linking insurance costs to weight

Safeway CEO Steven A. Burd thinks he's solved the nation's health care crisis. The California-based grocery chain has kept its insurance costs stable for the last four years, he says, while its competitors have watched their bills rise by an average of 38 percent. That's because Safeway encourages its workers to pursue a healthy lifestyle: If you're thin and you don't smoke, you can get a significant discount on your premiums. Otherwise, you've got two choices: Pay more for your insurance or mend your wicked ways.

Daniel Engber Daniel Engber

Daniel Engber is a columnist for Slate

Burd has spent the last several months making supersized claims about this incentive-based approach to health care. In June, he told the Senate that if the government had adopted a Safeway-style program in 2004, we'd have saved $600 billion by now. That makes a federal soda tax look like peanuts.

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It would be nice if these flashy numbers were verified by someone not wearing a Safeway management shirt. (The CEO variously describes them as coming from "my calculations" and "our calculations.") Nevertheless, lawmakers from both parties, as well as President Obama, are getting onboard with a Burd-inspired plan to help employer-sponsored insurance plans penalize fat people and smokers with higher premiums. The "Safeway Amendment," which was added to the Senate's health care bill earlier this month and has been proposed in the House, may soon end up as federal law.

There's only one problem: Insurance plans that discriminate according to body size are idiotic, unfair, and possibly illegal.

I'll explain why in a minute, but let's start with a short lesson on how these Safeway-style "wellness programs" came to be. Back in 1996, Congress passed the Health Insurance Portability and Accountability Act, which forbade discrimination among members of group health plans according to their health status. That meant CEOs like Burd couldn't deny coverage or apply higher premiums to people who happened to be sickly or accident-prone; there could be no higher rates for those who had congenital heart defects, or enjoyed skydiving, or happened to be morbidly obese. But the law left open the question of whether insurance plans could lower costs by encouraging healthy lifestyles through more exercise and better diets. In 2006, the federal government got around to clarifying the rules on "wellness programs." In the first place, there would be no limits on rewarding good behavior so long as everyone had equal access to the program. An insurance plan might reimburse members for joining a gym, for example, or entering a program to quit smoking. If participation were the only criterion for getting the reward, everything was legit.

The 2006 clarification also created a second, fuzzier category of wellness programs, in which a plan member's health status could indeed be used against him. Under certain conditions, the government said, a company could set up a system of payouts contingent on an employee's achieving specific health goals. The plan might lower your premium if you joined a gym and lost weight, or entered a program to quit smoking and actually succeeded. That's the kind of program Steven Burd has in place at Safeway: Instead of paying workers to exercise, Safeway pays them to lose weight or stay thin. (In terms of insurance premiums, that's the same as charging them extra money for being fat.) According to the federal regulations, such outcome-based rewards carry their own restrictions: They must be offered to members at least once per year, for example, and they can't exceed 20 percent of the cost of coverage. (The body-size discounts on Burd's plan max out at about $300.)

These rules didn't go into effect until the summer of 2007, and so far very few employers have experimented with premium discounts. But if the Safeway Amendment becomes law, two things would change: First, the regulations governing wellness programs would be codified as federal law; second, the limits on incentives would be increased to 50 percent. Burd already charges the fattest workers in his health plan extra for their coverage; under the new regime, that penalty could be more than doubled.

We're not talking about a radical change in policy so much as an expansion of what is already on the books. But if Burd gets his way, the loophole in the HIPAA nondiscrimination rules would get bigger, and more employers might adopt the kind of wellness programs used by Safeway.

OK, what's so bad about penalizing workers for being fat?

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