It's been 50 years since U.S. Surgeon General at the time Luther Terry issued the first report on smoking and how tobacco products can be linked to such diseases as lung cancer and heart disease – some of the top killers in this country on an annual basis.
Fast-forward 50 years and you'll see that a decent amount of progress has been made. Improved efforts by the Centers for Disease Control and Prevention coupled with the help of physicians have increased the education of our nation's youth as well as their parents about the adverse effects of smoking on their long-term health. Since 1965, the adult smoking rate has dropped from more than 40% to just 18% as of 2011. By 2020, the goal is to get the rate of smokers down to just 12%.
Source: Centers for Disease Control and Prevention.
Cities, individual companies, and the CDC have been pulling out all the stops to get the message out. Former New York City Mayor Michael Bloomberg banned smoking at beaches and in public plazas in New York City, for instance, to reduce the effects of second-hand smoke on innocent bystanders. Also, giant drugstore chain CVS (CVS +0.61%) announced in February that it plans to discontinue carrying tobacco products in its stores later this year as it's inconsistent with the company's goal of improving the well-being of its customers. Even the CDC spent $54 million in its first-ever televised ad campaign in 2012 in order to get smokers to quit.
Source: Lindsay Fox, Flickr.
The rise of e-cigarettes
One of the most common tobacco alternatives people have turned to in recent years that allows smokers to get their daily dose of nicotine without a number of the harmful chemicals found in cigarettes is electronic cigarettes, or e-cigs. E-Cigs are about the same size as a cigarette and heat a liquid solution containing nicotine inside of a metal tube that turns the solution into a vapor, which can then be inhaled by the user. The goal of e-cig manufacturers such as Lorillard (LO +0.00%), which is best known for its Blu E-Cigs, is to offer smokers an alternative source of nicotine that's similar to smoking a cigarette, but that's perceived to be safer.
Of course, e-cigs have a lot of unknown factors that come with their arrival as well. Concerns exist that while e-cig vapor appears safer than a traditional tobacco cigarette, not a lot is known about the effects of long-term vapor usage on the lungs. In addition, there are worries that e-cigs may even increase the number of people addicted to nicotine due to the perceived "safeness" of inhaling vapor compared to tobacco smoke. There are also concerns about indoor pollution caused by e-cig vapor.
With that being said, the Food and Drug Administration is looking at e-cigs very closely and has signaled at least in the early stages of its discussion that it intends to classify them in a similar manner to tobacco products.
In April the FDA proposed banning the sale of e-cigs to minors, prohibiting the distribution of free samples, and banning them from vending machines except in such cases as venues where minors aren't allowed. In addition, e-cig manufacturers like Lorillard would be required to label e-cig products with warnings that they contain nicotine, which is highly addictive, and all e-cig makers would be required to disclose the ingredients of their products. Simply, the FDA is taking the health of the public very seriously with e-cigs until it understands more about their long-term health effects and even sales patterns.
E-cigarette users, get ready to open your wallet!
But, that's only the half of it e-cig users! Your health insurance provider may clamp down on you as well.
Source: Kevin Cortopassi, Flickr.
As the law stands now (in most states), health benefits providers can base your premium rate based on your age, family size, geographic location, and whether or not you use tobacco products. That's it – just those four questions. However, as NPR notes, a person using tobacco products at least four times a week for a period of six months might pay a premium that's up to 50% higher than someone who doesn't use tobacco products at all.
In other words, not only are health insurers such as UnitedHealth Group (UNH 0.61%) able to charge a tobacco surcharge to consumers in most states, but if e-cigs are classified as tobacco products they're likely going to be able to keep more of these premiums over the long run since e-cig vapor appears to be less harmful to users than traditional tobacco products. This would probably translate into lower long-term medical costs for e-cig users compared to traditional tobacco users. Long story short e-cig users, you could be lining the pockets of insurance companies for years to come!
Plenty of details left to be discussed
Of course, the issue isn't completely cut-and-dried, either, and there are a number of details still left to be hashed out.
For instance, 10 states at the moment restrict or prohibit insurers from adding on a tobacco surcharge to people in the individual market. It's possible that other states could join this list and whittle away insurers' surcharge advantage. It's also possible the Centers for Medicare and Medicaid Services, which is conducting its own investigation into the safety of e-cigs, could come to its own conclusion which works in favor of e-cig users and against insurance companies.
Source: Morgan, Flickr.
Also, it remains to be seen how insurance companies will ultimately view e-cig usage. In essence, will it be classified as a drug-delivery device or branded as a tobacco product? In a study conducted by Munich American Reassurance Company earlier this month, 82% of life insurance companies with e-cig policies already in place classified them as tobacco products. At the moment it's just very difficult for insurers to distinguish between smokers and e-cig users without having all the long-term health facts in, which could make for a dicey situation for e-cig manufacturers like Lorillard.
Is this what the future holds?
The point here is that nothing is set in stone as it relates to e-cig usage and classification, but proposals by the FDA and the precedence of life insurance companies would appear to indicate that e-cigs are moving toward a classification as a tobacco product. If health insurers decide to act in accord with this thinking it's quite possible they could see a favorable long-term improvement in their medical loss ratio. Conversely, e-cig manufacturers like Lorillard could see a small reduction in sales growth largely due to this possible FDA classification and the beefed up marketing requirements that may come along with it.
