Bill to tax e-cigarettes whittled down; heavy tax on Juul-like pods remains; teens warned of health dangers of vaping and covid-19

The bill aims to reduce youth use of e-cigarettes. (Getty Images)

By Melissa Patrick
Kentucky Health News

A House bill aimed at reducing teen use of electronic cigarettes by increasing their price, while bringing the state more revenue, was trimmed down to its bare bones in the Senate and is now expected to generate $25 million, not $50 million.

"The amended bill only covers vaping and Juul-type products," said Sen. Chris McDaniel, chair of the Senate Appropriations and Revenue Committee. "The floor [stock] tax is eliminated as part of this. It is a 15% wholesale and $1.50 per-pod tax and that is the entirety of the bill."

Later, McDaniel said he had realized that the floor-stock tax on existing inventory had not been deleted from the amended version of the bill and said he would file a Senate floor amendment to get rid of it. The new version of House  Bill 32 is expected to generate an estimated $9 million in 2021 and $16 million in 2022.

The House version of the bill would have put a 25 percent wholesale tax on e-cigarette products, while raising the wholesale tax for "other tobacco products," such as cigars, to 25% from the current 15%, and add e-cigs to the list. It would have also doubled the per-unit tax on chewable and non-smokable products, but did not mention the tax on traditional cigarettes.

The bill, sponsored by Rep. Jerry Miller, R-Louisville, has been a priority for the Foundation for a Healthy Kentucky. President and CEO Ben Chandler told Kentucky Health News that while the foundation wanted the House version, it still considered it a win because of the pod tax.

"We think by and large this is good news," Chandler said. "We believe that the tax on pods, which is about $1.50 per pod, would put a significant dent in the youth use of cartridge-based e-cigarettes, like Juul. . . . All data shows that if the price goes up, youth use goes down, and we're interested in seeing a decline in youth use."  

According to the 2019 Youth Risk Behavior Survey, nearly 54% of Kentucky high-school students and 31% of middle-school students said they had tried an electronic "vaping" product and 26% of the high schoolers and 17% of the middle schoolers said they had used them during the 30 days before the survey.

Chandler stressed that it is especially important right now to get the word out to teens to stop using these products because they are known to damage the lungs, particularly while the coronavirus is going around.

"The coronavirus is a disease that attacks the lungs and if the lungs are damaged, it makes a person much more vulnerable," he said.

Miller also sounded a warning about smoking while this virus is going around. "The preliminary research does say that smokers as well as vapers are a little more susceptible to covid-19 because it is a respiratory disease," he said.

Chris Mooney of The Washington Post reports, "Experts note that damage to the lungs from pollutants that result from combustion -- whether inhaled deliberately by smokers, or inadvertently by those in regions with poor air quality -- may increase the risk of respiratory tract infections from viruses such as the novel coronavirus. Poor air can also cause lung inflammation that could worsen the symptoms of covid-19."

Industry was willing to accept a lower tax, might still get it

Tony Florence and Adam Seizemore of the Kentucky Smoke Free Association, an organization that represents about 300 "vape" shops in Kentucky, spoke against the bill.

Asked if the association could support the 15% tax,  Florence said, "That is still a fairly substantial burden. . . . For us, 10% was the magic number and we had discussed that with several senators, so I'm not comfortable saying whether 15% would be acceptable or not, but it is a far cry better than 25."

Some senators expressed interest in lowering the tax when the bill gets to the full Senate.

Florence said he was pleased that the new version of the bill did not include the floor-stock tax or an additional hardware tax, which McDaniel said would only be subject to the 6% sales tax.

"You all have done most of the work for me," Florence told McDaniel. "That's great."

Chandler said removal of the floor-stock tax was a mystery. He said it would have kept retailers from piling up inventory at the lower tax rate. "We're sorry that that was removed," he said.

"Vape" shops generally don't sell closed systems that use pods, like Juul, which are most popular with youth, but instead sell open-tank systems that "vapers" fill with e-liquids.

Florence cited a National Bureau of Economic Research study that found  for each 10% shift in e-cigarette price, there was a corresponding 26% reduction in e-cigarette sales and an 11% increase in combustible cigarette sales.  He also cautioned that excessive taxes on e-cigarettes would create a black market for the products. "Vape taxes drive people back to smoking," he said.

He called e-cigarettes  a "harm reduction product" and said they were "95% safer than traditional combustible cigarettes." He said it was the industry's goal to transition people off of combustible cigarettes to "a much less harmful product."

Florence referred to a British study that was debunked in a recent American Journal of Public Health article, which included an appendix of research to back up its conclusions. It said, "The evidence-lacking estimate derived in 2013 cannot be valid today and should not be relied upon further."

And a 700-page U.S. Department of Health and Human Services report says more research is needed before it can be concluded that e-cigs help people stop smoking.

The current version of the bill does not tax disposable, flavored e-cigarettes, which have become popular with youth since the FDA imposed a partial flavor ban that did not apply to these products, but Miller said he would make sure they are included in the final version of the bill.

"When we do the conference committee to reconcile the Senate and House versions of HB 32, I will make sure the final language covers disposables and non-disposables in the per cartridge tax," he said in an e-mail.

Chandler said the foundation had been able to see only snippets of the amended bill, taken on someone's cell phone, because the Capitol and Annex are closed to all but members, staff, news media and other designated persons. The committee substitute had not been posted as of 11:30 p.m. Thursday.

After 2018 tax hike, cigarette sales in Ky. dropped 10%, more than the national decline; bill would tax e-cigs, sales of which are rising

The tax hike made cigarettes noticeably more expensive in Kentucky than in Indiana and Tennessee, and narrowed price differentials with Ohio and West Virginia; that may have reduced Kentucky sales.

By Melissa Patrick
Kentucky Health News

The year after Kentucky increased its cigarette tax by 50 cents, to $1.10 per pack, 36 million fewer packs were sold in the state. That was a decrease of about 10 percent, more than the national decline of 6.1%.

According to an Aug. 9 report from the state budget director, in fiscal year 2019, which ended June 30, 321.1 million packs of cigarettes were sold in Kentucky, down from 357.1 million in fiscal 2018.

The report notes that from calendar year 2016 to 2017, cigarette sales in the state dropped 3.5%.

That's a "big deal." said Ben Chandler, president and CEO of the Foundation for a Healthy Kentucky, which lobbied for the tax increase and is now pushing for a tax on electronic cigarettes.

"It is pretty clear to us that a lot of these packs of cigarettes were not purchased as a result of the rise of the cigarette tax," Chandler said. "You can never completely prove it, but the fact that we had such a decrease . . . the size of the decrease was unusual right after the cigarette tax went into effect."

The last Kentucky Health Issues Poll, taken Aug. 24-Oct. 21, 2018, found that half of Kentucky smokers said they smoked less, or considered or tried to quit smoking, following the tax hike; 39% of Kentucky smokers said they reduced their smoking, 33% considered quitting, and 26 % tried to quit.

Chandler called those results "pretty good data that would suggest that the price increase does affect people's behavior."

Some critics of cigarette-tax increases argue that governments shouldn't rely on revenue sources that are declining. Chandler said that any loss in revenue from fewer tobacco sales will result in a significant long-term savings to the state's health budget. He said the state Medicaid program pays $600 million a year in smoking-related costs.

Chandler said he thought a proposed tax on electronic cigarettes would have a similar effect on teenagers' use of the products.

"I think particularly among young people, the tax will have a profound effect," he said. "One thing this information shows you is that when you raise the price, consumption does go down. And we believe that the people who are more likely to be susceptible to a price increase are kids because they don't have a whole lot of disposable income."

Kentucky lawmakers have pre-filed legislation (Bill Request 32) for the 2020 legislative session to tax electronic cigarettes like other tobacco products, as a way to curb surging youth use of the devices.

Map by Stateline, a service of the Pew Charitable Trusts, shows in
green states that tax e- cigarettes. (Click on map for a larger version)

Use of e-cigarettes nearly doubled among Kentucky youth from 2016 to 2018, with more than one in four high-school seniors reporting last year they they had used e-cigs, and experts say that is part of a national epidemic.

At a July news conference, state Rep. Jerry Miller, a Louisville Republican and House State Government Committee chair, announced a bipartisan proposal to levy an excise tax of 27.5% on electronic cigarettes.

E-cigarettes are the only tobacco product not subject to a state excise tax in Kentucky. The bill would also raise the excise tax on tobacco products such as snuff and chewing tobacco to equal the tax on cigarettes.

In its 2014 report, "The Health Consequences of Smoking: 50 Years of Progress," the surgeon general said increasing prices is "one of the most powerful tobacco control interventions" because price hikes are proven to reduce smoking, especially among teenagers.

An e-cigarette tax was in the 2018 bill that raised the cigarette tax, but was removed in the Senate, just before final passage and after lobbying by Altria Group, the largest tobacco company and 35% owner of Juul Labs, the largest e-cig company. Altria outspent all other lobbying interests in the 2018 legislative session, spending about $380,000 to influence legislators.

Between Jan. 1 and April 30 of this year, Juul Labs has spent around $43,000 for lobbying the General Assembly, according to a report from the Kentucky Legislative Ethics Commission.

Stateline reports that 17 states and the District of Columbia have specific taxes on e-cigarette products, with half of those taxes implemented in 2019, according to the Public Health Law Center at the Mitchell Hamline School of Law in St. Paul, Minnesota.

Cigarette sales decrease as Juul sales increase

A graph on the Juul Labs website shows that since the end of 2017 the quarterly decline in cigarette sales has steadily accelerated, going from 3.5% to 7.2%, while Juul sales surged, with the quarterly increases rising from 1% to 6.3%. The Juul analysis notes that a 1% annual decline in cigarette sales represents about 125 million fewer packs of combustible cigarettes.

"These changes in the U.S. tobacco market are a testament to the success of Juul products in switching adult smokers off combustible cigarettes," Juul CEO Kevin Burns said in the report.

Chandler pushed back on that assertion, saying that research does not show that adults who switch to an e-cigarette product are more likely to quit -- and that it also shows that those who use e-cigarettes often use both products. He added that the U.S. Food and Drug Administration has not approved e-cigarettes as a smoking cessation device.

He said research shows that teenagers who would never have smoked a traditional cigarette are using e-cigarettes at alarming rates. Other studies show that those who use e-cigarettes end up smoking traditional cigarettes at about the same rate as teens who first start with traditional smokes.

"I don't buy into the notion that Juul suggests, that the e-cigarettes have been central in cutting down smoking," Chandler said. "What I see is young people taking up e-cigarettes who would have never smoked otherwise."

8 of 23 health insurance cooperatives closing, more likely to follow; they blame Republicans; Republicans blame Obamacare

By Melissa Patrick
Kentucky Health News

One-third of the 23 health insurance cooperatives created under the Patient Protection and Affordable Care Act are closing, with others likely to follow. Republicans say this is yet another failure of "Obamacare," but health co-ops say Republicans denied them the money they needed to stay open. Others say the health co-op model is not sustainable.

Co-ops in Kentucky, Colorado, Iowa, Louisiana, New York, Nevada, Tennessee and Oregon have announced they are closing, and Insurance Business America reports that it expects this number to increase, with reports "suggesting that federal officials have a list of 11 Obamacare health insurance co-ops on the verge of failure," but the officials won't name them.

The co-ops were created under federal health reform as non-profit, consumer-governed health plans, with $2.4 billion in low-interest loans. They were designed to give for-profit companies more competition and to hold down rates. The eight failed co-ops received nearly $900 million, with the Kentucky Health Cooperative receiving over $146 million.

Several of the co-ops, including Kentucky's and Colorado's, fully expected to overcome their losses, but couldn't sustain the hit of not getting these expected subsidies. Kentucky's co-op lost $50 million last year but had reduced its losses to $4 million by the end of June.

"We were on track to reverse direction and begin operating in the black, and we expected this to come about in 2016," Glenn Jennings, who took over as CEO of the Kentucky co-op in June after Janie Miller resigned, said in a news release.

Joe Smith, chair of the cooperative's board of directors, said in an interview, "If we had of been allowed to book the outstanding risk corridor as a receivable, we would have been in compliance with the risk requirements."

These closures will impact almost 500,000 policyholders, according to The Wall Street Journal. That which includes 51,000 Kentuckians, who will have to seek alternative insurance for 2016. Open enrollment begins Nov. 1.

"Republicans say it’s doubtful if the federal government will ever recoup the millions of dollars in seed money the startups received," Stephanie Armour reports for the Journal. She quotes Sen. Cory Gardner, R-Colo., as saying the money "will likely never be repaid. . . . The years since Obamacare’s passage have been marked by crisis after crisis in health care, and it’s far past time for a new plan."

Republican gubernatorial candidate Matt Bevin said taxpayers will be responsible for paying for the losses of the Kentucky co-op, in a statement calling for an Obamacare debate with his Democratic opponent Jack Conway, who declined.

Smith, the co-op board chair, said he didn't know what the future held related to this debt, saying it will likely be a "complicated resolution."

"We plan to meet our obligation to members and the providers with the monies that we have available from now until the end of the year," he said. "What happens after that is . . . who knows?"

Many of the failed co-ops, including Kentucky's, blame their demise on a reduction in expected federal payments through the "risk corridor" program, which is meant to subsidize insurers who take on high-risk customers. These reductions are a result of restrictions that Republicans added to the omnibus spending bill last December that barred the administration from using other federal funds to make up the shortfalls. The Kentucky co-op was hoping for $77 million in risk-corridor money and got $9.7 million.

"Quite frankly, if you go back to the sequestrations, which the Republicans brought into place, it is the cause of all of this," Smith said. "Somebody really needs to sit down and look at what Congress did over the last couple three years that has caused this to happen to most of the co-ops. They set out to destroy the Affordable Care Act and this is a piece that they found they could do."

Insurers had asked for about $2.87 billion in payments based on their 2014 results, but the Centers for Medicare and Medicaid Services said that there was only $362 million available to make those payments, which came from collections from other insurers that had performed well, Armour reports.

Kentucky Health Cooperative sold 75 percent of the policies bought through the state health-insurance exchange and attributed some of their troubles to the fact that they attracted too many unhealthy people and thus had to pay out much more than expected in claims.

U.S. Senate Majority Leader Mitch McConnell says the idea that Republicans should take any of the blame "couldn't be further from the truth," and said Kentucky's co-op, "like the others, collapsed under its own weight." McConnell wrote in rebuttal to a political column by Al Cross in The Courier-Journal and other newspapers that said the GOP helped cause the failure of the co-ops.

On Oct. 21, McConnell said on the Senate floor, "The administration knew beforehand that this plan was not viable and that tens of thousands of people could lose their coverage. They chose to cling fast to a disastrous left-wing experiment with our health-care system over choosing stability and affordable coverage for the many people caught up in Obamacare and these failed health-care co-ops."

Smith, asked if the Kentucky co-op has any hope of getting additional risk-corridor money, said, "I am not sure, quite frankly. From our perspective, they owe us another 60 million dollars. I'm just not sure if it is going to come or not."

Colorado HealthOP said in a statement that the decision to close its co-op was "irresponsible and premature" and that it was “well on its way” to repaying its loans early. The co-op reported a net loss of $23 million last year.

The New York Times reports that some experts have said these new co-ops have been "hobbled" from the beginning because the "federal loans granted to co-ops to get established are typically far below the capital needed to weather the uncertainty of the first years and be able to attract enough members to be successful." It also notes that the regulations attached to the loans make it hard to attract outside money.

In an opinion piece for Forbes, Tim Worstall, who writes that he is "not a great fan of Obamacare," says that the failure of the health co-operatives created under the ACA "isn't really a failure of Obamacare as such. Rather, it's a failure of the cooperative model" in an industry that has large capital requirements, noting that the co-ops that have succeeded typically started small and have grown over time.

Armour also notes that co-ops struggle because they tend to attract younger, healthier people and, "many were required under the risk adjustment formula to pay fees to help cover the sicker patients who signed up with established carriers."

Because of these failures, dozens of surviving health co-ops, smaller insurers and new benefit providers are forming a coalition, Armour reports, writing,"The coalition wants changes to a federal formula known as risk adjustment, which takes money from plans with healthier and younger enrollees and gives it to plans with older and sicker customers to spread out financial pressures on insurers. The health co-ops and smaller insurers say the formula, along with another health law program that aims to offset insurers’ financial losses, is putting them out of business."

Kentucky Health News is an independent news service of the Institute for Rural Journalism and Community Issues, based in the School of Journalism and Telecommunications at the University of Kentucky, with support from the Foundation for a Healthy Kentucky.