Covering Risk or Risky Behaviors?

The insurance solution to risky behaviors, such as smoking and underage driving, is to raise premium to discourage such behaviors and not to subsidize the treatment of such behaviors.

Smoking is a leading cause of mortality in the U.S. It accounts for more than 420,000 deaths yearly and 30 percent of all cancer mortality cases (Okuyemi et al.). Diseases and deaths caused by smoking also inflict a heavy financial toll on our society. The Surgeon General of the U.S. reported in 1992 "... the estimated average lifetime medical costs for a smoker exceed those for a nonsmoker by more than $6,000." (Baredregt et al.).

Though deadly in consequence, smoking is the most preventable risky behavior (U.S. Preventive Services Task Force; Westmaas and Brandon). Numerous clinical studies have demonstrated convincingly that smoking cessation is both effective (that it works well in terms of helping smokers to quit smoking) and cost effective (that it can save lives at a lower cost than many other effective preventive interventions). Thus it seems reasonable that insurance companies should cover smoking cessation interventions because of the apparent benefits to the insured, insurers, and the society as a whole.

But most health plans do not fully cover smoking cessation services (Westman). While there are strong arguments to provide subsidized smoking intervention, insurance is not the proper vehicle to deliver this service (Warner). This is because covering smoking cessation violates the "first principles" of traditional insurance.

What is insurance for? Insurance is for covering very high-cost events that occur randomly and rarely. For example, fire can cause substantial damage but happens infrequently and unpredictably. Thus it makes perfect sense for homeowners to buy fire insurance. In contrast, we do not insure against low-cost risks that occur frequently like losing an umbrella.

In the case of smoking intervention, the cost of cessation therapy is relative small and many smokers who wish to quit can resort to many low-cost treatments. If your health insurance covers smoking cessation, it should be viewed as a subsidy and not insurance.

Should smoking treatment be subsidized? If so, who should pay for it? The classic economic argument for subsidizing some persons' consumption of certain goods and services is that such consumption produces benefits for the broader society (i.e., positive externalities). If smokers quit, for example, they are likely to be healthier, more productive, and more likely to reduce health care use than before, thereby saving health care costs for the rest of us. Thus a strong case can be made for subsidy using tax dollars for a variety of community-based programs such as anti-smoking programs in the schools and free or low-cost counseling and pharmaceutical therapies for smokers.

But these arguments do not make a convincing case for insurance coverage from the economic perspective. The insurance solution to risky behaviors, such as smoking and underage driving, is to raise premium to cover the expected loss and discourage such behaviors. Yet, most health insurers do cover or at least do not exclude smoking cessation treatment without added premium.