Health Insurance Surcharge Laws


Health insurance costs continue to rise and states have begun to take action to rein in some of the costs by establishing various types of surcharges. Many of these surcharges are being assessed to employers, providers as well as certain types of health plans. A federal law known as HIPAA allows surcharges to be applied to an employer's group health insurance policy if certain conditions are not met by an employee. Counties are also beginning to add surcharges for employees who smoke. Some of these surcharges are designed to increase the cost of health insurance for those who do not follow a healthy lifestyle.


  • The Health Insurance Portability and Accounting Act of 1996 or HIPAA allows an employer's group health plan to require participants to certify that tobacco products have not been used in the previous 12 months. If a participant does not provide a certification, a surcharge of up to 20 percent can be applied to the annual cost of coverage for the employee. The group health plan also needs to provide a reasonable alternative for employees to avoid the surcharge. This can be done by joining a cessation program or watching videos about the inherent heath consequences of smoking.

Smoking Surcharges

  • County commissions in various states are beginning to implement surcharges for employees that smoke. Orange County in Florida is one such county that is applying this type of surcharge beginning in January 2010. Employees of the county will have to certify that they do not smoke or have a $25 surcharge applied to their paychecks. The county plan will even apply to individuals who are not smoking at work. This type of surcharge is designed to not only rein in health costs but reduce the amount of time employees are smoking during working hours.

Obesity Surcharge

  • Some states such as Alabama are beginning to add a surcharge to health policies for individuals who are obese. Alabama is implementing a surcharge on state workers in an attempt to get them more fit which can reduce the costs of health coverage. State employees who do not follow requirements for free screening and take steps to improve their health will be charged $25 a month. The surcharge for state employees is to begin in January of 2010.

Free Rider Surcharge

  • In addition to surcharges to health insurance polices some states, such as Massachusetts, are implementing a surcharge for businesses that have more than 10 employees. The surcharge will be applied when any employee or dependent receives a service from a state free care program more than three times. The surcharge can range from 10 percent up to 100 percent. A business does not need pay the surcharge when certain conditions in the law are met, such as contributing to a health plan for the employee..

Health Care Provider Surcharge

  • The state of New York has a law called the Health Care Reform Act, which places a surcharge on state licensed health care providers that provide patient care. The surcharge applies to third-party payers such as a group health plan that is responsible for paying the costs for medical expenses. There are two options for paying the surcharge, which can range from 8.18 percent up to 25.09 percent.

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