As health insurance premiums have risen, many individuals are looking for creative (and less expensive) ways to meet both their coverage needs and the mandates of such legislation as the Accordable Care Act (ACA). One alternative which is gaining more visibility is participation in a health care sharing ministry (HCSM).
Currently, 30 states allow the operation of such ministries without regulating them as insurance, and provisions in the ACA exempt participants in certain “grandfathered” HCSMs from the “individual mandate” requiring them to maintain approved health insurance coverage.
What is a health care sharing ministry?
In simple terms, a “health care sharing ministry” is an organization of religious believers (usually Christian, with each ministry mandating what beliefs a participant must profess to belong) which covenant to share one another’s medical expenses in common.
How is this different from insurance?
To most people, spreading the expenses of medical service between participants seems very much like their understanding of “insurance.” So what are the differences which make HCSMs distinct from most states’ statutory definition of insurance?
Assumption of Risk:
When an individual contracts for coverage with a health insurance carrier, that insurance carrier explicitly assumes risk on behalf of that individual. Contractually, the insurance carrier is the responsible party for a certain portion of potential medical costs (usually the greater the medical expenses incurred, the greater the portion—for example, an insurance policy may state that after a certain dollar amount of medical expense incurred in a given year, the insurance carrier will pay all remaining covered expenses for that year).
In contrast, an HCSM makes no assumption of risk. Legally, each individual is still liable for his or her medical expenses; the HCSM is an organizational structure by which other participants have volunteered to contribute to those medical expenses.
Pools and Premiums:
Insurance carriers put great effort into actuarial calculations, attempting to estimate the medical expenses likely to be incurred by their contracted subscribers, and using those estimates to calculate insurance premiums which will cover those expenses and allow the insurance carriers to pay their own bills (payroll, taxes, etc.). Because the future can be forecast but not known, each state’s insurance department requires an insurance carrier to maintain a reserve of funds from which it can draw in the event that actual medical expenses exceed those expectations. In a worst-case scenario, an insurance carrier is itself insured—it carries “reinsurance” coverage as protection for those instances for which it could not legitimately plan, such as natural disasters or epidemics which greatly outstrip its ability to cover expenses from its own resources.
In contrast, an HCSM has no actuaries and typically maintains nothing beyond a minimum pool of working funds. This decreases the “overhead” of maintaining a reserve, but it also means that the shared costs assessed to participants can fluctuate wildly as the claims and expenses of other participants are incurred. There is a stated intention on the part of the participants in an HCSM to share expenses, but there is no guarantee—and if expenses incurred in a catastrophic event or series of events drain the participants’ combined ability or willingness to contribute, there is no “reinsurance” to step in and cover the shortfall.
Eligibility and Benefits:
Because of many state and federal regulations, culminating most recently in the ACA, health insurance carriers are held to uniform standards of whose applications they must accept and what benefits they must offer. Currently, health insurance carriers who offer coverage plans to individuals and small employers (defined in most states as those with fewer than 50 full-time employees) cannot decline to cover an applicant because of health history or pre-existing conditions, nor can they raise the applicant’s premiums for those reasons, at the time of application or later. There are also federally mandated “essential health benefits” which almost all medical insurance must cover, such as maternity, mental health, emergency treatment, and preventive services. Further, these insurance carriers are strictly prohibited from discriminating by race, gender, religion, ethnicity, etc.
In contrast, an HCSM can set its own guidelines as to how healthy an individual must be to participate, and can reject the application of any individual who seems to be a “bad risk” because of pre-existing conditions, or who seeks to participate in the HCSM only in order to receive aid without the ability or intention to give or share. By their nature, an HCSM only invites the participation of those who subscribe to a certain set of beliefs, goals, and ethics, the particulars of which vary between ministries. And because there is a moral and doctrinal component to HCSMs, they can decide (either by the decision of the board of directors, or by popular vote of the participants, depending on the specific HCSM’s management structure) to exclude assistance for expenses resulting from behavior of which they disapprove, such as substance abuse cessation or maternity services for unwed mothers.
Agent Licensing and Oversight:
To sell insurance, an individual must pass a state-specific examination to qualify for an insurance license in that state, which is then maintained through a program of continuing education requirements. Further, in order to sell the insurance products and plans of any particular insurance carrier, the agent must be “appointed” (approved) by that carrier; in the course of that appointment, the records of the state’s insurance department are checked for complaints, reprimands, or judgments against that agent. Typically, the agent must also be covered by an “errors & omissions” (E&O) insurance policy to protect both himself and the insurance carriers he represents from the consequences of human error.
Obviously, because HCSMs are not considered insurance and are thus not regulated by the insurance department in the majority of states, analogous safeguards do not exist for a non-agent advocate or salesperson encouraging participation in an HCSM.
Conclusion
HCSMs can be useful alternatives to health insurance coverage for participants who understand how they differ from insurance, and are willing to operate under the assumptions, risks, and obligations which HCSMs require.
However, consumers who are used to traditional health insurance coverage need to take extra care that they compare the differences between HCSMs and insurance before seriously considering participation in a HCSM.
Nothing in this document should be construed as legal or financial advice.
