Question

Why would a health insurance company charge a higher premium to a tobacco user?

Tobacco use is a voluntary behavior.
Without higher premium prices for tobacco users, nonusers end up paying for users’ claims.
Tobacco use causes significant health issues.
Using tobacco products is very expensive.
Tobacco users are at a higher risk of failing to pay their premiums on time.

Answer 1

Correct reasons:
- Tobacco use causes significant health issues.
- Without higher premium prices for tobacco users, nonusers end up paying for users’ claims.

Why the others are not good reasons:
- “Tobacco use is a voluntary behavior” is not the primary actuarial justification — insurers price according to expected claims (risk), not moral judgments about choices.
- “Using tobacco products is very expensive” (the retail cost of tobacco) does not affect an insurer’s medical-claims costs, so it’s irrelevant to premium-setting.
- “Tobacco users are at a higher risk of failing to pay their premiums on time” is not a standard or substantiated reason insurers charge higher health-premium rates; the charge is driven by higher expected healthcare costs.