It goes without saying… health insurance is unaffordable for most people. Even if you can afford the premium, you can’t afford to actually use the policy because of co-pays, deductibles, and coinsurance.
According to the Milliman Medical Index, the 2018 national average cost for healthcare for a family of four was $28,166, as reported by USA Today. That includes the premium and out of pocket expenses. According to the report, employers will pay an average of $15,788 of that. The employee will pay the rest ($12,378). That’s $7,674 for premium and $4,704 in out-of-pocket expenses.
This lack of affordability has driven people into the alternative market wilderness in search of options. Health sharing has become the go-to solution, with no signs of slowing down. According to the Alliance of Health Care Sharing Ministries, an estimated 160,000 people participated in health share organizations (HSOs) in 2014. Today, they say that number is over one million.
I wouldn’t be surprised if the number was a lot higher. I’ve seen the financial statements of an HSO whose member contributions grew from $3.3 million to $21.2 million in one year. What’s even more surprising is that their net income was 58% of revenue. A few more years like that and they’ll have a nice reserve balance on hand and be able to keep contributions level.
What is Health Sharing?
Health sharing is where individuals join together through a common bond or belief, and voluntarily share the cost of each members’ medical expenses. The organization’s membership guidelines spell out the rules. Most HSOs are nonprofit corporations sponsored by religious organizations; but at least one is controlled by a for profit company. Since I don’t have those details fully vetted, I’ll just leave it at that… but I find it interesting.
Health sharing is not insurance. It is an alternative to insurance. It functions very much like insurance, but using insurance terms to describe it is taboo; maybe even illegal. And for the HSO, they don’t want anything to do with insurance regulation. Most HSOs are careful about the terminology they use to explain their health care sharing operations. Some seem more concerned about this than others. I’ve noticed varying degrees of similarity between their operations and those of an insurance company.
They all use non-insurance terminology and have disclaimers galore saying:
- Their services are not insurance.
- Their guidelines are not a contract.
- They aren’t responsible for paying anything.
Notwithstanding, they walk and talk like a duck, I mean insurance company. And I suppose that’s expected. After all, the real differences are a little deeper below the surface.
Most HSOs only sell individual memberships, although Sedera Health and Aliera offer group coverage for employers. This is a game-changer for any company stuck in a small market group health plan.
How is Health Sharing Different from Insurance?
For starters, let’s look at some of the words HSOs use to describe their services. Below is a translation chart converting some of the HSO lingo into insurance terms.
Difference #1 – Transfer of Risk
Transfer of risk is the key difference between health sharing and health insurance. When you buy a policy of insurance you are transferring the risk of loss to the insurance company. They become responsible, by contract, for paying the benefits detailed in the policy.
HSOs are not responsible for paying benefits, their members are. But members aren’t contractually obligated to pay for anything. If your eligible expense go unpaid, you have no legal recourse. Participation and payment are voluntary, but if you don’t pay in your “contribution” you aren’t eligible to have your “needs” shared among the community. So, there’s no transfer of risk going on here. The HSO is not a risk taker. They’re like a third-party administrator who manages enrollment, processes “medical needs”, and runs the day to day operations.
That might not give you the warm fuzzies you’re looking for, but there’s no having your cake and eating it too when it comes to health care.
I like how Christian Healthcare Ministries addresses the issue in their Member Guidelines:
Sometimes people question how we can be sure our members will honor their commitment to carry each other’s burdens. We point to our history: Since 1981 CHM members have faithfully shared eligible medical needs.
But there’s hope. Some HSOs are starting to purchase reinsurance for their programs. In fact, if the excess quote I saw went through, then one HSO may already have it in place. This is a very smart move, as it will go a long way to narrowing the gap between health sharing and insurance. It creates greater financial stability, and now you actually have some risk transfer happening. As a matter of fact, my business partners and I are working with a reinsurance broker to implement excess coverage for an HSO that we work with.
Difference #2 – Funds Administration
Some HSOs don’t handle their member’s money. In those cases, the HSO tells each member how much (up to their monthly contribution limit) to send, and to which member. In other words, members send money directly to other members to reimburse them for their covered expenses. Imagine how difficult it is to coordinate these members to member payments and have it all balance out. They must have some awesome custom software that solves the distribution puzzle each month.
Other HSOs collect the monthly contributions, process the benefit requests and reimburse their members directly through an escrow account, more like a traditional Third Party Administrator (TPA). This is a much better way to manage the payments. Altrua HealthShare goes a step further and actually pays the provider directly. They aren’t the only one who does.
Difference #3 – Regulation
Insurance companies are strictly regulated and must maintain specific financial standards. They’re required to maintain a minimum amount of capital to support their risk-taking activities. This is called Risk Based Capital (RBC) and it’s the way regulators measure the amount needed to support their overall operations. States even have guaranty association funds to pay claims if the insurance company becomes insolvent and is forced into liquidation.
Since neither state nor federal government regulates HSOs as insurers, they don’t have to comply with state insurance laws. There’s no financial oversight, and since they aren’t responsible for paying the benefits, they have little financial risk. If the member’s contributions aren’t enough to meet member needs, they can either increase the contribution amounts or simply not pay the full balance. Their members will have to make up the difference on their own. It’s the unadulterated free market at work.
You have to be a savvy consumer, understand the risks, and make a decision. There are no regulators you can go crying to if your “needs” go unpaid, despite the fact that you’ve paid your “share” to help others. The operating history of the company, and the integrity and experience of their executives, is critical. It’s up to you to do the due diligence because the government will not.
If things get out of hand and HSO contributions become too expensive, their major advantage over health insurance evaporates. That would likely put them out of service. Like I already mentioned, purchasing reinsurance is a great way for these HSOs to help their members transfer some of the risk away from the group and strengthen the program. It will be interesting to see if the industry adopts this strategy.
Difference #4 – Provider Payment
Members of an HSO are self-pay customers. They are uninsured. For the member, this is a good thing. Why? Because it forces them to be actively involved in the treatment they receive and how much those services cost. We know that getting individuals involved the utilization and cost improves care and lowers the expense.
For the health care providers this can be a double-edged sword. On the one hand, they don’t have to deal with the paperwork, payment delays, and post-payment audits required by their contracts with insurance companies. On the other hand, they have collection issues because they are dealing with individuals who typically don’t have the money to cover the costs up front. Even after receiving the benefit payment from their HSO, they might choose to do something else with the money.
Most HSOs don’t use provider networks. As a self-pay customer, members are able to use whichever providers they want. However, the HSO will review and negotiate the medical bills.
On the other hand, Altrua utilizes a provider network. Visits to a specialist require a referral from the primary care doctor too. Both Medi-Share and Aliera have a PPO network. All three HSOs issue ID cards for their members to give to providers. It’s starting to look and feel a lot like insurance, right?
Here is the explanation for how benefits get paid from the Altrua 2019 Membership Guidelines
Members do not file claims, nor does Altrua HealthShare handle claims. A “claim” suggests there exists an entitlement to other’s money. Altrua HealthShare processes medical needs for sharing among the membership. Your medical provider may submit your medical need by using the instructions on the back of the member ID card. Once the medical need is received and deter- mined eligible for sharing, the medical need is adjudicated, and MRAs are applied. The membership will send your provider a check for the shareable amount. These funds are issued from the members’ monthly contributions held in the membership escrow account.
Liberty HealthShare doesn’t use a provider network, but they do a have an online tool to help you find a provider. Kingdom Healthshare uses the PHCS PPO network.
But just because HSOs don’t have networks doesn’t mean they don’t work to control medical costs. They help their members navigate the health care system by finding the best provider, negotiating the cost ahead of time and avoiding unnecessary procedures. If services are received before contacting the HSO they will work with the provider to get the self-pay cash rates.
How do Healthshare Benefits Compare to Health Insurance Benefits?
HSOs provide much better coverage than health insurance when it comes to the things they actually cover, but health insurance covers more situations. More about that below.
HSO unshareable amounts (deductibles) are lower, and the contributions (premiums) are much cheaper. All-in-all, when it comes to covered benefits, HSOs are a significantly better value, in my opinion.
Unshareable amounts are based on a need, not visits. When compared to co-pays, deductibles and coinsurance, the same health event will cost you less out of pocket than your high deductible health plan. Here’s an example from Sedera Health.
Example: The McMahon family has a one year old child suffering from persistent ear infections. Their health plan had a deductible of $5,000 per family member. Care for their child required a series of antibiotics & booster injections and a visit with an ENT specialist who inserted tubes in the child’s ear at a local hospital. Here’s how that need looks in their Health Insurance plan vs. Sedera’s Medical Cost Sharing model:
To limit their exposure, HSOs ask health questions as part of their underwriting. They either exclude or significantly limit the coverage for applicants with certain serious medical issues, like cancer and diabetes. Some apply surcharges for being overweight and for smoking, and they all limit coverage on pre-existing conditions. Basically, everything a health insurance company would do if wasn’t illegal for them to do it.
HSOs have varying annual limits, lifetime maximums and sub-limits for certain procedures like organ transplants, and conditions like pregnancy. Kingdom Healthshare limits maternity coverage to $5,000 on their best plan, with no coverage on their other two plans. Christian Healthcare Ministries (CHM) has a max benefit of $125,000 as long as you joined 300 days before the doctor’s estimated due date. Another exception is Sedera Health. They don’t have either an annual limit or lifetime maximum – other than a rule that a need can’t take up more than one third of the total funds available for sharing.
CHM also has a “catastrophic bills program” called Brother’s Keeper. If you enroll in their Gold Program and sign up for this deal, then the sky’s the limit – actually there’s no limit – you get unlimited sharing.
One great feature you can find in some HSOs is the non-resetting unshareable amount. It resets based on a need, not the calendar. In other words, if you have a need that crosses calendar years, you don’t have to come up with the unshareable amount for expenses related to that need just because it’s a new year. That’s a big deal, since a late in the year emergency could cost you twice your deductible with traditional insurance. With a health share plan there’s no reason to rush into a last-minute knee surgery and ruin your holiday.
Medical Cost Sharing, Inc. has a vanishing Personal Responsibility feature and even a return of your contributions after 10 years. Sounds crazy, right? Here it is in their own words:
Simply put, we reduce your personal responsibility (much like a deductible in traditional insurance) by $100 for every year you are a member.
If a member contributes for a period of ten continuous years without filing any claims, 100% of their contribution is refunded.
It’s impossible to compare every plan. So, let me try and boil it down for you. Are you willing to give up some of the traditional benefits that make up comprehensive coverage – for better coverage of the remaining benefits – at a premium savings of up to 60%?
But if you like to abuse drugs, drive while intoxicated, smoke recreational marijuana, don’t like to wear helmets, might contract an STD outside marriage, or like to commit crimes, then you’d better stick to health insurance because HSO plans won’t share any of the medical expenses arising out of these activities.
What are the Risks?
The overriding risk of an HSO is their financial viability. They might not have enough money, at any given point, to pay everyone’s eligible expenses. The HSO could go out of business leaving you to pay costs that would otherwise be covered, even though you’ve paid all of your contributions on time.
To illustrate, let’s look at Liberty HealthShare’s annual audited financial statements.
At the time of this writing, the 2017 statements were the most recent year’s available. Member dues were $58.5 million – these are not the member’s sharing funds. Dues are the non-profit’s operating income. Member contributions are not part of the assets of the non-profit, so those figures are not carried on Liberty’s financial statements. The member sharing funds are accounted for at a very high level in the Notes to Financial Statements.
At the end of the year, the non-profit entity had $1,574,771 in assets, which is comprised of cash and accounts receivable (AR) – the AR being $172,138 of that. But that’s not the member’s money and Liberty has no obligation to the members for paying shareable expenses with those assets.
Funds contributed by members totaled $167.2 million and amounts shared were $168.3 million. Yes, they paid out more in shareable expenses than the members paid in contributions. Luckily, they had a cash balance of $2.7 million in member’s contributions at the beginning of the year. That leaves a cash balance to start 2018 of $1.6 million. Another year like 2017 and Liberty will have to increase member contributions just to break even.
Health sharing isn’t a long-tail liability, but you still have incurred “needs” which haven’t been submitted for reimbursement. So if you’re not even breaking even on a cash basis, you’re really behind the eight ball on an accrual basis.
By not following SAP accounting, by not using actuaries and maintaining reserves based on an RBC-like calculation, the HSO industry is exposing itself to risks that could result in a big black eye and spoil the party for everyone.
For you, as a broker, you risk having to pay the cost of an E&O claim, since your current coverage normally won’t protect you against claims arising out of healthshare sales. However, there is one HSO I know of, Aliera Healthcare, which has secured E&O for brokers who sell their product. Based on the certificate of insurance I saw, the broker’s retention is $10,000.
So, what do you think? I probably should have put the benefits after the risks so you’d be more positive about health sharing at the end of the article. But it is what it is – no sugar coating here. It doesn’t change the fact that I’m bullish on HSOs. In the final analysis, based on my risk/reward scale, I’m presenting it as an option to my clients every time.
The fact is many are fleeing the standard market for short-term catastrophic insurance, association plans, and HSOs. This migration is leaving the unhealthy population to buy from the ACA marketplace or to get coverage through an employer plan.
Large employers still have many options, especially by going with some degree of self-insurance. Small employers are not so lucky. They are left to bear the brunt of the broken system. Fortunately, there are a few HSOs that will work with employers, and I predict these HSOs will soon be the go-to option for the small group market. When you compare the benefits and rates, the HSOs deliver far more value, pound-for-pound, than traditional health insurance. As an example, the Steamboat Springs, Colorado Chamber of Commerce recently announced their association plan with Sedera Health to all their members.
With an HSO plan, small employers can use some of the premium savings to help their employees with pre-existing conditions. And they can help those who are ineligible for membership with their ACA marketplace premium and out of pocket expenses. A little creativity can go a long way once you and your employees have taken insurance out of the healthcare equation.
Granted, that transition isn’t easy, psychologically speaking. And there are nuances and coverage differences between the HSOs that make comparing plans time consuming. Although the process is tedious up front, it’s well worth the effort in the long-run.
As for the HSOs, they can help ease the transition by using reinsurance, working with actuaries, employing statutory accounting practices, and adhering to RBC standards – when it comes to member contributions. This would go a long way to closing the gap between them and the insurance companies – and strengthening their position as a solid alternative.
So, should you sell health sharing? That’s a decision you’ll have to make for yourself. As for me, the answer is… yes.
Categories: New Markets