North Carolina Proposed “Obesity Tax” Drawing Attention
Aggressive wellness measures are rarely seen in the public sector, but when state or local governments actually put such tactics into effect for their employees, the business community takes notice. That is exactly what happened when Alabama became the first state to impose a surcharge on obese employees. The surcharges, which go into effect January 2010 for employees with a Body Mass Index (BMI) over 35 who do not show significant progress in weight loss over the coming year, gained national attention as one of the most aggressive employer weight control programs in the U.S and drew sharp criticisms from opponents regarding privacy controls and overall effectiveness (see Eyes on Benefits dated September 12, 2008). Now, the State of North Carolina has made plans to become the second state to offer such disincentives to its employees in the form of a “fat tax” for overweight employees – and employers all over the state are taking notice.
The Price of a Healthier Workforce
According to Anne Rogers, Director of Integrated Health Management with the NC State Employees Health Plan, the state is actually planning to charge higher premiums for workers who have a BMI over 40 (although some experts consider people with a BMI of 30 to be obese). The surcharge, which would go into effect in July 2011, coincides with a similar approach to charge higher premiums for employees who smoke effective one year earlier. These individuals would remain in the state’s more expensive health plan, while non-smokers, smokers in cessation programs and individuals with BMIs under 40 would be enrolled in a plan with discounted rates.
The reasoning behind the surcharges is to limit the leading causes of preventable deaths in North Carolina, while encouraging state employees to adopt healthy lifestyles. Obesity (along with tobacco usage) is one of the leading risk factors for ailments such as heart disease, stroke, Type 2 diabetes and chronic breathing disorders, and North Carolina ranks in the bottom 25 percent of states for obese adults. In addition, state plan administrators are trying to stem the rising costs projected over the coming years. Last year, the NC State Employees Health Plan covered over 600,000 state workers, retirees and teachers at a total cost $2.6 billion, and the state legislature had to appropriate an additional $250 million to cover claims costs overages. While state officials have estimated that the surcharges on smokers could save about $13 million a year, they have not determined how much taxpayers could save when the obesity measures kick in.
Resistance and Roadblocks
The planned surcharges have been met with resistance by several state employees, and the State Employees Association of NC has been strong in opposition to the strategy. Many argue that there should be more incentives built into the program, like discounts on health club memberships. Others consider the controls an invasion of privacy and are fearful that their own personal health information might be mishandled or misused.
Several other states are considering measures similar to the ones adopted by Alabama and North Carolina, but the road to clear administration of these disincentives is littered with obstacles that may be tricky to overcome. While smoker surcharges are not uncommon among private sector employer plans, penalties for obesity are often avoided. Potential conflicts with the American Disabilities Act (ADA) and other non-discrimination laws could result in messy litigation. In addition, plan administrators may face an uphill battle to remain in compliance with HIPAA and ERISA regulations that govern employer health plans. Most employers that engage in aggressive wellness practices often utilize weight-loss incentives rather than go the surcharge route.
Private Sector Watching Closely
While the details of the “obesity tax” on state employees are still being finalized, employers in the private sector are keeping a close eye on the developments. Most employers realize the value of maintaining a healthy workforce, but many are cautious about developing aggressive wellness tactics, such as penalties and surcharges, to achieve their objectives. Further complicating matters is the lack of quality data on how well these tactics work. The steps taken by North Carolina state officials represent a bold venture in the direction of creating healthy behaviors, but they could eventually have a significant effect on how private companies develop and facilitate their own wellness programs.
For more information, please click on the following links:
North Carolina to Impose “Fat Tax”
NC Fat Tax Greeted with Controversy
Tax Foundation Blog: Obesity Premiums in North Carolina
Employers Target Bad Habits for Insurance Coverages
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Important Notice: Hill, Chesson & Woody does not engage in the practice of law, accounting, or medicine. Therefore, the contents of this communication should not be regarded as a substitute for legal, tax, or medical advice.
November 6, 2009
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