Health Care Sharing Ministries

Photo: iStock.com/JamesBrey

Health care sharing ministries (HCSMs) are nonprofit companies that pool money from participating members to cover the members’ health care costs. Despite fulfilling some of the same functions as health insurance, these arrangements are subject to little regulation compared to the heavily regulated health care sector.

On Oct. 27, 2021, four members of Congress sent a letter to the acting chairman of the Federal Trade Commission (FTC) Bureau of Consumer Protection with “great concern about the proliferation of HCSMs.” What are these products, and why are members of Congress concerned about them?

Rapid Growth in Recent Years

HCSMs have existed in the United States for more than 100 years. Initially established among Amish and Mennonite communities, HCSMs served as an alternative to insurance for religious communities that object to purchasing insurance. The passage of the Affordable Care Act (ACA) in 2010 catalyzed significant growth in HCSM membership, as the programs marketed themselves to wider audiences as a lower-cost alternative to health insurance.

The ACA exempts members of an approved HCSM from the individual mandate. Approved HCSMs are those that have been in operation without interruption since Dec. 31, 1999, have members who share a common ethical or belief system, and allow members to retain membership even after they develop a medical condition. Many of the largest HCSMs in operation today were formed when Christian denominations acquired HCSMs operated by small Amish and Mennonite communities.

It is difficult to quantify the growth of HCSMs in the last decade because there is not much public data about them. In most states, any HCSM disclosure beyond required Internal Revenue Service (IRS) filings is entirely voluntary, and the few states that require additional filings do not generally require disclosing enrollment numbers. A 2018 PBS article shared an estimate from the Alliance for Health Care Sharing Ministries (AHCSM), a trade organization that represents seven of the nine nationwide HCSMs, that 160,000 people were enrolled in these programs nationwide in 2014 when the ACA fully went into effect. The AHCSM website now estimates 1.5 million people participate in HCSMs, a more than ninefold increase in seven years.

Benefit Structures and Lower Costs

HCSM monthly contributions can be as little as 25 percent of the cost of monthly health insurance premiums, and affordability is a key selling point in HCSM advertising. These plans feature stringent benefit limits (even by pre-ACA standards), which in turn may engender a healthier risk pool, with both effects potentially contributing to the lower price point.

HCSMs usually have some form of deductible or copay, though the exact structure and terminology used to describe these differ significantly among organizations. For example, Samaritan Ministries features a $400 and $1,500 per incident “initial unsharable amount” (i.e., copay) for its two coverage options, and Medi-Share has plans with “annual household portions” (i.e., deductibles) ranging from $3,000 to $12,000.

Coverage limits for preexisting conditions are common—with provisions from coverage delays to lifetime exclusions—with significant variation among different conditions and organizations. A 2018 Commonwealth Fund Issue Brief documented annual and lifetime sharing limits (i.e., a lifetime maximum, a benefit limitation forbidden by the ACA) for all five of the researched HCSMs. However, current plan documents show that these provisions have been removed from most plans, perhaps due to significant revenue growth, allowing the companies to absorb more catastrophic risk.

HCSMs commonly exclude services that are considered immoral within the “common ethical or belief system” that the ACA’s definition of HCSM requires. Common examples are alcohol/substance use addiction, maternity care for unmarried women, illnesses caused directly or indirectly by unhealthy lifestyle choices, such as smoking or obesity, and infertility treatment. In addition, HCSMs frequently exclude coverage for conditions that are not as clearly understood to be immoral but can be very costly, such as treatment for non-addiction behavioral health conditions (e.g., psychiatric care, autism and eating disorders) and non-emergent emergency room (ER) visits.

Finally, HCSMs are not subject to the ACA’s pricing restrictions—perhaps most important, the 3:1 age band restriction. A 2017 Milliman Research Report found that moving from a 3:1 age band to a 5:1 age band would decrease premiums by 25 percent for a 21-year-old and could be offset by a similarly sized increase in premiums for the 64 and older age band. This could be another prominent factor in HCSMs being able to have a lower price point for younger beneficiaries.

Actuarial Considerations

The rapid growth and development of HCSMs raise at least three key actuarial questions, some of which the members of Congress also raised in their letter to the FTC.

1. Anti-selection: Does increased enrollment in HCSMs increase individual market premiums? As healthier people (more likely to benefit financially from the low-premium/low-coverage option that HCSMs offer) exit the individual market, only relatively sicker enrollees (financially worse off with HCSMs due to their high cost-sharing and benefit limits) will remain, driving up the costs of individual market coverage.
2. Financial stability: In addition to regulating benefit options and pricing, state Departments of Insurance (DOIs) ensure that insurers are able to pay out future obligations by holding sufficient capital reserves as well as enforcing systematic procedures when a company falls below these capital requirements. HCSMs do not have any such capital regulation, potentially increasing the risk of failure and leaving consumers unprotected in such an event.
3. Consumer protection: Numerous studies have shown that most U.S. health care consumers are unable to navigate the complexities of today’s health care market. HCSMs potentially exacerbate this problem, as they do not need to follow the benefit disclosure templates that health insurers do. They also often implement benefit limitations that could result in catastrophic costs.

Anti-Selection

The ACA patient protections enjoy widespread public support today,¹ so the limitations HCSMs set would seem to detract from their appeal. In a best-case scenario, healthy and informed consumers may correctly (from an actuarial perspective) see the financial risk of removing coverage for low-frequency/high-cost and high-frequency/low-cost medical events to be worth the financial benefit of lower monthly premiums. In a worst-case scenario, consumers may seek the lower monthly premiums without an appreciation of the financial risks they are assuming.

While national HCSM enrollment (estimated at 1.5 million) is not huge compared to the roughly 158 million Americans who receive health coverage through their employers, it is significant in the context of the 12 million enrollees in the ACA’s individual marketplace plans² (about two-thirds of nongroup enrollees³).

The data in Figure 1 summarizes HCSM enrollment (per AHCSM data) and individual marketplace enrollment. This data is imperfect—the AHCSM data does not represent every HCSM in the United States, and the individual marketplace is only two-thirds of all nongroup enrollees. The data is, however, directionally correct and provides a potentially alarming picture of the potential for significant anti-selection.

At the same time, the significant subsidies for households earning less than 400 percent of poverty-level income (roughly 87 percent of exchange enrollment) limit the possibility of significant anti-selection. HCSMs may not offer any premium savings to such individuals, so there may be no financial gain in enrolling.

Financial Stability

A key regulatory function of DOIs is enforcing minimum capital requirements of insurers. These requirements specify both the amount of money needed to be held in reserve (based on the future projected claims payments for the insurer) as well as what types of assets those reserves may be held in (e.g., high-quality bonds).

HCSMs do not have minimum capital requirements, and while they presumably endeavor to maintain capital to remain solvent, the potential harm to consumers caused by insolvency is why insurers (health and other insurance) are uniquely regulated in this regard. Most HCSMs appear to be on solid financial footing, though the lack of financial disclosures makes a comprehensive analysis difficult.

There has been a concerning outlier to this general rule, however. In the summer of 2021, Sharity Ministries (formerly known as Trinity Healthshare) filed for Chapter 11 protection and ceased operations after being ordered by several state DOIs to stop enrolling new members after it was accused of deceptively marketing its products as health insurance. Sharity announced it “will no longer be able to facilitate any sharing requests” as part of the bankruptcy, and it is requesting bankruptcy court approval to reimburse member contributions after the bankruptcy filing date.

In addition, Sharity was the subject of a class-action lawsuit that accused the company of keeping up to 84 percent of dollars received from members for administrative costs, using only 16 percent to reimburse members’ medical claims. Sharity strenuously objects to this claim, and a court has not evaluated the accusation yet. However, it raises another important way in which HCSMs differ from traditional health care.

The ACA’s minimum medical loss ratio (MLR) requirements of 80 percent for small group/individual and 85 percent for large group require health insurers to pay out that percentage of total revenues in medical costs or issue rebates of any remaining premiums to members. HCSMs are not bound by this requirement, resulting in the potential for abusive pricing practices.

HCSMs are not required to publish financial information that would allow for a calculation of an MLR equivalent and frequently account for member contributions and sharing amounts distributed off-book under the justification that these funds were never assets of the health share. This is not an illegal or even unethical account practice for a health share, but it certainly is not fully transparent.

Liberty Health Share (the trade name of Gospel Light Mennonite Church Medical Aid Plan) voluntarily publishes this information in its Form 990. The company has maintained an MLR equivalent of more than 80 percent in the two most recent years for which filings are available (2018 and 2019). Between 2015 and 2018, total funds contributed by members more than doubled each year. During this period, the MLR equivalent was between 60.4 percent and 72.2 percent (outside of the ACA’s allowed limits). However, one could reasonably assume the company was investing heavily in advertising and other growth initiatives in this period—its margins are not unreasonable for a non-health care company in a similar stage of growth.

Consumer Protection

Numerous studies have shown that American consumers do not understand health care well—it is a very complicated product. An American Journal of Managed Care study in March 2019 found that only 31 percent of consumers were able to correctly answer the question in this scenario: “Suppose that under your health insurance policy, hospital expenses are subject to a $1,000 deductible and a $250 per-day copay. You get sick and are hospitalized for four days, and the bill comes to $6,000. How much of that hospital bill will you have to pay yourself?” Even more concerning, white respondents were more than twice as likely to answer the question correctly than Black and Hispanic respondents.

Similar trends were present for questions about the term “annual out-of-pocket limit,” the understanding that doctors who care for patients at an in-network hospital may not be in-network themselves, and the understanding of appeal rights.

Even when members understand basic health care concepts and terminology, behavioral economics (the study of human behavior and how and why it differs from the economically “right” behavior) has shown that health care consumers make suboptimal choices in many ways.⁴ This raises significant concerns about products like HCSMs in the marketplace—do consumers know what they are getting into?

The ACA recognizes these gaps in consumer knowledge and requires that health plans (even plans purchased through employers) include benefit and coverage information in “a concise document detailing, in plain language, simple and consistent information about health plan benefits and coverage” that also includes a “uniform glossary of terms commonly used in health insurance coverage.” Even in the ACA marketplace, consumers routinely make suboptimal decisions. Figure 2 explains the behavioral economics reasoning behind some of the reasons uninsured survey respondents gave to explain why they did not try to get health insurance through the ACA marketplace.

Benefit of the doubt allows for the assumption that HCSMs are not intentionally deceptive in their benefit documentation. But the fact that comparably less risky and complex individual market plans must comply with specific benefit disclosure requirements to overcome well-studied prevalent gaps in consumer knowledge must be recognized. Should similar regulations apply to HCSMs?

Conclusion

HCSMs have become a significant factor in the individual health care market, yet the regulatory structures governing them are from an era when they were much smaller. As HCSMs continue to grow, there is a significant need to better understand these programs through gathering data that describes how they operate and the impact these plans have on their members.

We must also develop an understanding and remedy key financial and regulatory risks that are currently absent. As an accompaniment to the Congressional attention this topic is receiving, as well as the potential impacts on health insurance markets more broadly, actuaries can contribute to more fully researching HCSMs and their impacts on health insurance markets.

Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries or the respective authors’ employers.

Copyright © 2021 by the Society of Actuaries, Chicago, Illinois.