IQ expert Jason Beans: Pinocchio gets penalized — the consequences of lying on health insurance forms

Q: What happens when you lie on health insurance forms about smoking habits, drug use, health problems and so on? Can they check on you or penalize you?

A: In many states, lying about smoking habits and drug use is treated just like lying about your health history. I wrote about the importance of being honest about your mental health history in one of my previous columns. Lies will catch up with you and be punishable, putting your and your family’s insurance coverage, financial stability and job security in jeopardy.

How will they know?

When it comes to health insurance, it’s hard to prove “material misrepresentation” unless you admit it. Nicotine leaves the blood stream 48 hours after a person stops smoking. When it comes to life insurance, however, when the cause of death is determined to be related to tobacco use, the costs of a family’s insurance annuity or health insurance coverage can be shot. The insurance company may even contest the case, above and beyond the insured person’s financial ability to fight the case.

Facing the music

The penalties can be pretty steep if you take the risk and lie about your smoking habits, drug use or health problems. The insurance company can take away your and your family’s insurance benefits, sue you to recover legal costs and premiums or even seek penalties associated with fraudulent claims. As I mentioned earlier, in some states, lying about smoking for insurance purposes is seen as “material misrepresentation,” just like being dishonest about your health history. In other states, however, if the policyholder misrepresents his or her smoking status, the face amount of the policy may be decreased.

Clearing the air

Tobacco users’ premiums are typically three times higher than non-tobacco users’ premiums. In fact, employees who smoke cost roughly $3,391 more a year each for health care and lost productivity, according to federal estimates. So it’s no surprise that some companies are steering clear of smokers, as highlighted by the New York Times. You may recall that back in 2009, Whirlpool fired 39 workers for lying about their tobacco use. Now, some companies make a concerted effort to get their employees to sign tobacco-use affidavits as part of their wellness programs.

Then there’s the risk of drug use on the job. So if you are using drugs, even if they’re prescription meds, you may have no choice but to tell the truth. Certain types of jobs that include things like physical labor or use of machinery require drug testing. If a worker is under the influence of drugs on the job, it puts not only the employee but other employees within the company in harm’s way, increasing a company’s liability.

Many states offer discounts on workers’ compensation insurance premiums if an employer takes certain steps to ensure a drug-free work environment, such as administering drugs. So it’s no surprise that a person’s drug test results can prompt dismissal. We’re seeing more and more states doing drug testing in the workplace, according to the New York Times.

Kicking the habit

It’s important to remember that personal change can take place after you report your status to your health insurance plan. Quitting a bad lifestyle habit can mean a reduction in your health insurance premium. Certain states, such as Illinois, have even made it a law that health insurance companies must support a policyholder’s smoking-cessation program. Your employer’s wellness program may have free offerings that help you kick the habit, get healthier and get rewarded in the form of cash or prizes.

Jason Beans is CEO of Chicago-based Rising Medical Solutions, a medical cost containment/care management company serving the workers’ compensation, group health, auto and liability markets. Beans founded Rising in 1999. Since then, Beans has received a number of honors, including Business Council Advisory Man of the Year and Midwest finalist for Ernst & Young Entrepreneur of the Year. Rising has appeared several times on the Private Company Index’s Top 10 Growth list and Inc. magazine’s Inc. 5000 list.

Beans earned a master’s degree from MIT’s Entrepreneurial Masters Program and a bachelor’s degree in finance from Boston College.

For more information, visit www.risingms.com.

If you have a health insurance question for Jason Beans, please send it to john.egan@insurancequotes.com.