By M.D. Kittle | Wisconsin Reporter
MADISON — Lighting up may cost state employees $50 more per month, but the state’s coffers could be about $6 million richer over the next biennium, according to a new report from the nonpartisan Legislative Fiscal Bureau.
Gov. Scott Walker’s proposed measure to affix a premium surcharge of tobacco-using state employees, a fee contained in the governor’s 2013-15 budget proposal, is expected to bring in about $2 million in 2013-14 and $4 million in 2014-15.
Proponents of the budget item, up for discussion with the Joint Finance Committee on Tuesday, say the surcharge is only fair because smokers and other tobacco users drive up health-care costs for all state employees and Wisconsin’s taxpayers.
Opponents have varying positions, from those who see the surcharge as just another sin tax to critics such as the American Lung Association, which asserts the fees don’t work and hit lower wage earners harder.
Walker administration officials, however, have estimated health-care costs for tobacco users are as much as 35 percent higher than that of nonsmokers. The governor has said the surcharge would help offset those costs.
The national smoking rate is 19.3 percent, according to the Centers for Disease Control and Prevention.
“Tobacco use is highly correlated with a wide range of serious illnesses and the CDC estimates that annual smoking-related deaths in the U.S. total approximately 443,000,” the fiscal bureau report states. “In addition, the CDC estimates that for every smoking related death, 20 people suffer with at least one serious illness related to smoking.”
Tobacco use among state employees is about 9.6 percent, according to a 2012 state Department of Employee Trust Funds survey, based on self-reported responses. The fiscal bureau analysis does not note revenue projections based on stick incentive – that is, how many state employees would kick the habit should the surcharge be implemented.
ETF’s Group Insurance Board, which offers group health-care coverage plans for state employees, local government employees and Wisconsin Retirement System annuitants, would be charged with developing and administering a crediting mechanism that would credit surcharge revenue back to state agencies, the fiscal bureau states. The bill doesn’t specify how credits would be issued.
A number of issues are unaddressed in the surcharge bill, including just how it will be determined which employees are subject to the surcharge. The fiscal bureau parenthetically notes an attestation process.
Also unclear is:
- How the surcharge will be integrated into the state employee premium structure – “Whether to develop premium rates for tobacco users separate from nonusers, or maintain consistent rates and require the surcharge to be paid by affected employees as an additional employee-required contribution.
- How annuitant premium rates are structured to allow the use of sick leave credits for surcharge payments.
- The definition of tobacco use that conforms to federal law.
- How the attestations relating to tobacco use are to be administered and the information integrated into ETF and state agency computer systems.
State retirees who use tobacco products also would be required to pay the surcharge.
The bill directs surcharges paid by annuitants must be used to reduce future health-care coverage premiums for retirees and to reimburse ETF for costs incurred by the agency in providing health care coverage to retirees. The secretary of the state Department of Administration would be responsible for setting surcharge amounts to be used to reimburse ETF.
“Again, the bill does not specify how the surcharge revenues would be used to reduce future health care coverage premiums for annuitants,” so the insurance board would have to “develop and administer a mechanism for doing this.”
The Group Insurance Board is scheduled to meet Tuesday.
“ETF will be asking the board to approve recommendations for policies pertaining to the administration of the tobacco use surcharge proposed in the executive budget bill,” said Mark Lamkins, ETF spokesman.
In a memo to the insurance board, ETF advises the preferred approach, “in the interest of both administrative ease and fairness to our members,” is to apply the surcharge as an add-on.
“For example, if a Tier 1 contribution for regular employees is $85 (the 2013 value), a tobacco user would be charged $135. A state patrol classified employee who pays $31 for a Tier 1 plan would pay $81,” the memo states.
Wisconsin would join a growing lineup of states implementing tobacco use surcharges. The American Lung Association, according to the fiscal bureau report, cites a dozen states that impose a tobacco-user surcharge for state employees. Surcharge amounts generally fall in the range of $25 to $80 per month, according to Employee Trust Fund officials.
Wisconsin’s surcharge proposal would allow the Group Insurance Board to terminate the health-care insurance of an employee who falsely claims to not use tobacco. But the Affordable Care Act, aka Obamacare, prohibits such penalties.
“Rather, those attesting falsely about their tobacco use must be allowed to re-file their attestation and the employer is permitted to recoup the unpaid surcharges,” the fiscal bureau report states. It appears the termination provision will be removed from the bill. The fiscal bureau recommends the Legislature modify the bill to allow the insurance board to recoup surcharge payments of false claimants “to the extent allowable under law.”
Walker’s 2013-15 budget proposal appears to count on the surcharge. The fiscal bureau notes that “estimated reductions in state fringe benefits costs associated with the proposed tobacco-user surcharge were factored into the calculation of the compensation reserves for most state agencies and the amounts appropriated separately to the University of Wisconsin System for increased unbudgeted compensation and fringe benefit costs.”
If the finance committee should decide to delete the surcharge provision, that unrealized revenue would increase fringe benefit costs from the levels projected for the compensation reserves and the UW System, the fiscal bureau warns.
Contact M.D. Kittle at [email protected]