With a 3-2 vote Thursday, state budget officials made South Carolina the eighth state nationwide to charge state employees more if they or their spouses light up.
Gov. Mark Sanford called it a "small but meaningful step" toward making people responsible for endangering their own health.
"It's a case of recognizing cost," he said. He added, "People ought to have complete freedom on how they treat their body," but said nonsmokers shouldn't have to pay for their co-workers' bad health care decisions.
Last year, tobacco-related illnesses cost South Carolina taxpayers $75 million, accounting for 7 percent of $1.1 billion paid out for public employees' health care, according to the state's budget board.
The $25 surcharge won't take effect until Jan. 1, 2010. The state's health plan operates on a calendar year, and a majority of the five-member Budget and Control Board said it would be too hard to implement the increase by January 2009 or in midyear.
Although Sanford proposed the increase, he voted "no" because he wanted it to start sooner.
"I always find it baffling how slowly the bureaucratic wheels turn," he said.
Under an honor system, nonsmokers must fill out an affidavit to pay the lower rate. Penalties for lying on the forms are not yet determined. In Alabama, for example, employees caught lying must pay all monthly surcharges dating back to when they falsely filled out the form. It's often their co-workers who alert officials.
An estimated 58,600 South Carolina employees - or 24 percent of all those working in state and local governments and schools - will be paying more.
The state health plan covers state workers, educators in public schools and colleges and county and municipal employees who choose to participate.
Including family members, the state's health care plan covers more than 400,000 South Carolinians, according to the budget board.
Sanford said he hopes the hike encourages people to stop smoking but he realizes it probably won't.
"Nothing's going to persuade people to quit smoking unless they want to," said human resources specialist Katie Brasington, while standing outside the state Education Department on a smoke break. A smoker for 30-plus years, she said she agreed with the increase.
"Smokers do cost insurance companies a whole lot more money," she said. "If you do something that causes poor health, you should have to pay."
But her smoking co-workers were incensed by the idea and called it discrimination.
"That's insane. They've already taken enough away from me as a smoker," said Jackie Nichols, a smoker for 40 years, as she headed to the designated smoking spot. "I'm punishing myself if I choose to smoke. How dare them! That's infringing on my rights."
Others called it unfair, since smoking isn't the only bad habit that increases health care costs.
Recognizing that, the governor said he's open to additional surcharges, such as for obesity. But he also wants to add incentives for people to make healthy choices.
"If you choose to eat better and exercise, you ought to be rewarded," Sanford said.
South Carolina has a history as a tobacco-friendly state, with the nation's lowest cigarette tax of 7 cents per pack, unchanged for three decades. Though far less tobacco is planted here than during its heyday, South Carolina still ranks fourth nationwide in harvested tobacco acres, according to the National Agricultural Statistics Service.
But the skyrocketing cost of health insurance has prompted more states, particularly in the South, to add a tobacco surcharge. Since West Virginia did it in 2000, Alabama, Kentucky, Georgia, Indiana, Kansas and South Dakota have followed. Surcharges range from $15 to $40 monthly.
About 25 percent of Alabama's public work force pays an extra $24 a month. It hasn't proved to be a deterrent, with the number of smokers on the payroll remaining steady since the policy started in 2005, said Gary Matthews, chief operating officer of the Alabama State Employees' Insurance Board.
"It's not a whole lot, but it helps defer some of the cost," he said. "It's $3 million we wouldn't have had otherwise to help pay claims."
Private companies charging smokers more include PepsiCo Inc., which recently hiked its tobacco-use surcharge from $100 to $600 annually in an effort to encourage more people to quit. The dramatic increase seems to be working, with a nearly 13-fold increase in the number of employees entering a smoking cessation program this year, said spokesman David Dececco.