Every year, the cost of healthcare continues to climb. With each open enrollment, insurance costs increase and become a growing source of stress for employees and their families. Those not eligible for a tax credit may feel forced to choose between hefty monthly premiums or going without coverage altogether (while paying the substantial tax penalty). However, alternatives such as a health share plan (“HSP”) exist that can potentially save individuals lots of money on healthcare costs or fines for being uninsured or underinsured.
While these plans offer key practical and legal benefits, and may seem similar to traditional health insurance, they are not technically considered insurance. Let’s take a deeper look at how these plans work and how they differ from conventional insurance coverage.
Health share plans are also referred to as health care sharing ministries (HCSM) or health care sharing programs. The main difference among the variety of programs is their guidelines for member acceptance and coverage of alternative treatments. Oftentimes the programs are religious or faith-based. However, this does not mean individuals need to practice that religion or faith. Rather, most of these programs ask their members to live a moral and healthy lifestyle.
Like health insurance deductibles, HSP programs have an “unshared” amount that an individual is responsible for paying before sharing begins. Each HSP member pays a monthly share amount—essentially a “premium”—and for their own out-of-pocket expenses. They are responsible for covering an “annual personal responsibility” or “unshared amount.” These monthly contributions may be far lower than traditional insurance premiums, making this type of coverage a more accessible choice for many individuals. After the required contribution, the organization’s members share the cost of nearly all—in some cases, up to 100%—medical expenses.
An HSP is not necessarily considered “insurance” in the traditional sense, and how they share costs is very different from cost sharing, in a technical sense. Instead, health share plans are cooperatives in which members agree to cover a portion of one another’s medical bills. In other words, the organization’s members “share” medical costs. Members pay a monthly “share,” and the health sharing organization coordinates the financial contributions to support the medical needs of all sharing members.
HSPs can be a great fit for individuals who are generally in good health with few pre-existing health conditions. Individuals who only want or need catastrophic coverage may benefit as well. If individuals lack access to insurance through an employer, are not eligible for a tax credit based on income, or cannot afford current health insurance premiums, then an HSP may be a good alternative for saving money on healthcare costs.
According to the definition outlined by the Affordable Care Act (ACA), a HSP needs to meet the following requirements:
- It must be a 501(c)(3) organization (aka a nonprofit)
- It must have members who share common ethical or religious beliefs
- It must not discriminate membership based on state of residence or employment
- It can’t discontinue membership due to the development of a medical condition
- It must have existed and been in practice continually since December 31, 1999 (a grandfather clause)
- It must be subject to an annual audit by an independent CPA which must be publicly available upon request
Since HSPs are non-insurance entities, they are not subject to typical insurance regulatory oversight. In contrast, insurance companies are subject to rules that
- govern policyholder treatment,
- monitor their financial health,
- protect consumers if an insurance provider has insufficient funds to pay obligations or
- does not live up to regulatory requirements.
Because HSPs don’t have to always follow traditional insurance carrier rules, they could pose some risk to participants with regard to legal protections. If a member’s claim is unpaid or denied coverage, they might be left with little to no legal protection.
On the other hand, there are limitations on whether and how states may regulate HSPs. In particular cases, courts have concluded that HSPs are in the business of insurance. Still, no state currently treats these entities as insurers. Thirty states have enacted “safe-harbor” rules that exempt HSPs from state insurance regulation. Under the safe harbor, as long as an organization meets the exemption requirements1, it is, by definition, not engaged in the business of insurance. And therefore, it cannot be required to comply with rules otherwise applicable to health insurers.
Insurance is defined as a guarantee of compensation for specific losses, illness, damage, or death in exchange for a premium. HSPs are not insurance because no guarantee of compensation exists. Despite this, HSPs do usually count as a form of insurance under the ACA. The ACA grants HSP members an exemption to its prior requirement that people maintain minimum essential coverage (MEC). While the federal penalty for not having insurance coverage no longer applies as of 2019, the federal exemption still holds for many states that have individual mandates.
Unlike most health insurance plans, most HSPs are nonprofit organizations dedicated to helping members with their medical expenses. Although initially founded on Christian principles and primarily run by religious organizations, many HSPs today focus on a community of giving that extends beyond religion. This does mean, however, that each HSP has its own member requirements. When researching an HSP, members should select a program that aligns with their values and lifestyle preferences.
As noted above, most states have passed laws that make health share plans exempt from health insurance regulations. These laws are designed to protect consumers and determine how benefits are paid and premiums are collected. Here are some of the notable differences:
|Health Insurance||Healthcare Sharing Plan|
|Type of business||Plans are typically issued by for-profit businesses.||Non-profit|
|Claim processing||Claims are always processed according to the plan’s policy.||Members may make requests to the HSP based on their provider’s billing processes to facilitate and pay for the cost of eligible medical expenses.|
|Explanation of benefits requirement||Explanation of benefits is required to be provided after each visit.||Explanation of benefits does not need to be provided.|
|Regulation||Must follow regulations set by the state insurance department.||Can decide their own processes for paying claims.|
|Coverage for pre-existing conditions||Must cover pre-existing conditions regardless of lifestyle choices||May not cover certain pre-existing conditions|
|Allocation of funds||Do not allow members to give money directly to another member.||May allow members to give money directly to one another for medical bills.|
|Coverage of preventative visits||Have yearly wellness or preventative visits that are covered or covered with a co-pay. Health insurance plans can cover vision or dental depending on the policy.||Many plans do not cover preventive care or wellness visits. Members pay for this care out-of-pocket in addition to their monthly contribution. Some plans also do not cover vision or dental.|
What are the advantages to HSPs?
Traditional health plans can be expensive, and many individuals may not be able to afford the rates. These individuals might also not qualify for ACA premium tax credit subsidies, making HSPs a good option because they tend to be less expensive than traditional insurance.
Flexibility with enrollment
Most health plans only allow individuals to enroll during open enrollment or, if there is a qualifying life event, a special enrollment period. HSPs do not have set enrollment dates allowing flexibility on when individuals can join.
Flexibility with care
HSP members often have more flexibility in choosing their healthcare provider, while traditional insurance companies may restrict coverage to only in-network providers or have very narrow networks. HSP members, therefore, might have more control over their healthcare treatment. They may also be able to opt for alternative care providers such as naturopathic doctors and chiropractors.
What are the downsides of HSPs?
Lack of coverage for pre-existing conditions
One main downside of a health share plan is its lack of coverage for pre-existing conditions. While state and federal laws mandate that insurance companies accept consumers with pre-existing conditions, a health share plan is not subject to these same requirements. This means that a consumer with a pre-existing condition, such as diabetes, high blood pressure, heart failure, or cancer, may not get coverage for this condition through an HSP.
Still, there are exceptions, and some HSPs might accept certain pre-existing health conditions. Some HSPs might phase the condition in, meaning that members would not share costs for that condition during the first year. Then, during subsequent years of membership, members might share a certain amount of eligible expenses that treat the condition. In other words, a member may need to pay into the plan for a certain number of years before getting coverage.
Programs rooted in particular religious beliefs might not consider certain medical costs, such as addiction treatment or maternity costs out of wedlock, shareable. The HSP decides which health conditions are deemed shareable and which are not, depending on how those conditions align with their beliefs. Eligibility is usually outlined in the individual member guidelines, and it’s important to be aware of the details when deciding on an appropriate program.
Lack of negotiated discounts
Consumers who have traditional health insurance enjoy the advantage of negotiated discounts that place limitations on the costs of medical care. Many insurance plans will negotiate discounted rates with certain hospitals and institutions that may lower the cost of service.
Since a HSP has significantly fewer members, they have less bargaining power to reduce medical costs.
Fewer legal protections than traditional medical insurance
Health sharing plan members do not have the legal protections that they do under traditional health insurance. Most importantly, this means that HSPs are not under a contractual obligation to pay members’ medical bills. While HSPs can often provide excellent coverage for large medical claims, it’s important to read all of the enrollment terms. They may state that there is no guarantee of coverage if a member incurs a significant medical expense.
In most states, the insurance laws and regulations do not apply to HSPs, so the state insurance department cannot intervene on a member’s behalf if problems arise. In addition, HSPs will often cap payouts, so even if treatment is covered initially, an HSP may stop paying when the costs exceed a specific dollar amount. The member would then need to cover the rest of the bill out-of-pocket.
IRC Section 213 governs which types of expenses and health insurance premiums can be reimbursed through an HRA. An insurance company does not offer HSPs, so their benefits are not legally considered insurance. Unfortunately, this means that employees can’t get their membership fees or donations to an HSP reimbursed through their HRA since the IRS does not allow for this.
For employers, this means that while employees cannot get their membership fees covered through an HRA, they may still be eligible to receive reimbursement on a number of qualifying medical expenses, depending on the HRA offered.
As of 2021, HSPs fees or donations may be reimbursed from an eligible QSEHRA or similar HRA tax-free alongside minimum essential coverage (MEC), a requirement for QSEHRA. This is because the IRS is proposing that an HSP will be considered an official medical expense. However, HSPs still do not count as MEC for QSEHRA and only as an additional medical expense. This means that employees on a sharing plan can get reimbursed for their monthly share only if they also have other health insurance that meets MEC.
In addition, employees can use their HRA dollars to pay for out-of-pocket medical expenses, including prescription and nonprescription drugs, certain medications, doctor’s visits, and so much more.
HSPs can provide a great alternative to traditional health insurance, especially for anyone looking for more affordable options. However, since HSPs come with certain restrictions and limitations, it is vital to do enough research to find a plan that suits all your needs.
1 Such as providing a written disclaimer and a monthly statement of member payment requests and contributions.