I suspect any significant amount of lying about smoking would be used as rationalization for restructuring health insurance applications to contain a smoke-free discount instead of a smoking surcharge, thereby requiring all of us to subject ourselves to some medical test to prove we're not a smoker, if we want to get the discount, meaning the discount would would be eaten up, at least in part, by the fee for the medical test and the cost of our time to do it every year or two or three. Then there would be the black market for the testing, so the group would pay the added freight of a non-smoking discount given to a smoker, with an unscrupulous lab benefiting on the side.
None of this is really unusual - it's basically the way other things work. There's a discount for folks who drive short distances to work, but people lie. The insurance pool the liar is in pays the added freight for the higher risk. Auto insurance also generally requires cars are in safe operating condition, but in the past there were unscrupulous mechanics in states where the inspections are done by private mechanics who took money to pass a car that failed the tests. It actually ends up with various new costs, associated with the individuals who would engage in such unscrupulous practices, being laid on everyone. Our state's inspection system now has inspectors who inspect the inspectors. The testing machines are certified and sealed, and test results are strictly electronic and encoded, so that they cannot be fudged, adding a bit more cost for everyone.
So like all honor systems, there's probably going to be a cost to everyone associated with those who won't engage the system with honor.
