Don’t Whack the Tobacco Differential Messenger!

It’s open enrollment season at Frenkel Benefits and, like clockwork, at least one of our client account managers calls me in to work closely with their client on implementing or updating a tobacco differential in their medical plan. It’s a somewhat tricky thing to do, so I’m happy to help. However, inevitably – when we discuss certain requirements – I feel like the mole in that Whac-A-Mole arcade game. You know it well; (me) the helpful, yet elusive mole pops up and (the client) tries to whack it with a hammer repeatedly!

So why do HR professionals get so frustrated? Here are the two main reasons:

  1. There are two ways to access the non-tobacco user rate.
    • Be a non-tobacco user OR
    • Complete a Reasonable Alternative Standard (RAS). Sounds harmless; however, I have to tell clients that for the RAS, they cannot require the employee to quit using tobacco. And that’s when the hammer comes out!
  2. Once the RAS is set, if it can be completed before the plan year begins – such as having tobacco users enroll in a cessation program during open enrollment – there’s no problem. However, if the employee meets the RAS after the plan year has begun, the employer is required to reimburse the tobacco-user surplus contribution back to the employee, starting at the beginning of the plan year. Here comes that hammer again!

There are many nuances to implementing a tobacco differential, but you can break them up into two basic schools:

  1. Some things each company can choose for themselves: what it means to be a tobacco user, how much surcharge they want to collect (which could be up to 50% of the cost of coverage), whether or not they want employees to change their status midyear if they become non-tobacco users.
  2. Others are the legal requirements, which are non-negotiable.

Whether for my colleagues or for human resources professionals, I stand ready to help…just please set down the hammer!

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