CHAPTER 8

Cost-Sharing Arrangements

In Chapter 4, I explained how and why traditional employer-based health insurance is expensive. One of the major reasons that health insurance is so expensive is because insurance pays the costs of routine medical care, which must be paid from (excessive) premiums collected by insurance companies. If insurance companies collected premiums to pay for only extraordinary medical care costs, premiums would decline substantially, and health insurance would then adhere to sound principles of indemnification (paying for a loss according to the terms of the insurance policy). Instead, insurance companies must cover their expected payouts, which are then passed on to employers in the form of ever-rising premiums. Employers, in turn, reduce wages and salaries of employees to pay for the premiums. In recent years, however, employers have had employees pick up part of the insurance premiums directly.

Despite having been a fixture of employees’ benefits package for decades, employers and employees, too, have expressed displeasure with this arrangement. For employees who want access to doctors outside of the insurance company’s network can be frustrating, to say the least. Patients want freedom of choice, not barriers to getting the best medical care possible. Both employers and employees also decry the lack of transparency in medical costs. Consequently, more and more employers have been seeking health benefits alternatives for their employees.

Chapters 5, 6, and 7 reviewed alternatives to traditional employer-based health insurance and how employees can have more freedom of choice, employers can save valuable resources while providing employees with benefits that give them better quality health care and possibly higher wages and salaries.

The focus of this chapter is to discuss a non-insurance alternative called cost sharing that would pay for medical costs outlined in the arrangement the group sets down for its members. Because medical bills are not “guaranteed” to be paid by the group, cost sharing may seem too “risky” for both employers and employees. Yet, billions of dollars have been reimbursed to members in the past couple of decades. Moreover, cost sharing has a long history and tradition in America, going back to colonial times and blossomed throughout the 19th and early 20th centuries. In fact, one of the strengths of American culture has been the creation of voluntary associations to deal with medical care, unemployment, life insurance, and other social and economic issues.

In his sweeping examination about mutual aid societies, David T. Beito recounts how millions of “Americans received social welfare benefits from their fraternal societies.”¹ These benefits were in effect a form of cost sharing, with life insurance playing a predominant role in providing a vital benefit to members of the fraternal societies. Accordingly, Beito points out, “Americans can also learn from studying the contrast between voluntary fraternal medical care and third-party payment systems such as private insurance and Medicaid.”² However, as successful as the fraternal societies were in fulfilling their missions, Beito asserts it would be virtually impossible to replicate these institutions today. Nevertheless, he dismisses the idea that fraternal societies have no role to play in the country today, especially since they exalted such values as “thrift, mutualism and individual responsibility.”³ These values have been replaced, to some degree, with a culture of entitlement, lack of transparency and accountability, and a third payment system that increases moral hazard.

Fraternal organizations emphasized that to be a member, it was important to exhibit “moral behavior”—restrictions on alcohol and narcotics use and “proper” sexual conduct—to avoid illnesses and thus medical costs that could be avoided. In short, fraternal societies would refuse medical benefits for any member engaged in conduct it considered “inappropriate.”⁴ In other words, fraternal societies had two missions: to help members pay for necessary expenses and to make sure they had the values that would keep medical costs down and thus contributions needed to fund the societies would be affordable to low-income workers, many of whom were newly arrived immigrants.

One of the ways fraternal societies provided low-cost medical care to its members was to hire a “lodge doctor.” According to Beito, members paid an annual fee as low as $1.20 per year to as much as $2.00. Fees varied across the country, depending on local conditions. Although this arrangement smacks more of a direct primary care model, the point of highlighting the approach reveals how the necessity of providing medical care to a group whose membership was based on ethnicity, national origin, and trade category met the needs of primarily immigrant communities without relying on third party insurance.⁵

A major concern of some opinion leaders and others during the early 20th century was that compulsory medical insurance would substitute “paternalism for fraternalism.” During the heated debates in the early 20th century, the proponents of fraternalism were able to carry the day and national compulsory health insurance was put on the backburner as the fraternal societies flourished. Nevertheless, the idea was planted in the minds of the public and influential physicians and others who embraced for similar or differing reasons the idea of medical care paternalism.⁶

The major takeaway from the history of America’s fraternal societies regarding social services is that they provided low-cost benefits in keeping with the culture of the era, self-help, virtuous behavior, and voluntary community solutions. Nevertheless, the decline of the fraternal model of social services began with the financial challenges they faced during the Great Depression and continued throughout the postwar period as government programs, regulations, and other interventions co-opted the role of fraternal societies.⁷

Medical Sharing Arrangements

An up-to-date version of sharing arrangements that were widespread in America before the Great Depression is becoming more “mainstream” for both employers and employees who want a low-cost health care benefits alternative. Needless to say, low cost is not a panacea if high-quality medical care is not provided to patients who participate in a medical sharing network.

So what are the main features of a medical sharing arrangement (also called health-sharing ministries, health care-sharing programs, and health-sharing plans) that have captured the imagination of a portion of the business community and increasing members of the general public, even though the number of Americans who use this method to pay for medical bills is miniscule compared with traditional health care insurance provided by the major companies? (It is estimated that at least 1.5 million Americans participate in some form of health-sharing arrangement.)

A medical-sharing arrangement is quite simple. Members who meet the guidelines be they a religious-based criteria, personal behavior standards, etc.—set forth in the medical sharing company’s (MSC) manual typically, pay a monthly fee depending on how many family members would participate in the plan. Fees vary depending (from $300–$500 per month) on the medical coverage the plan provides. These funds are then used to pay for qualified bills submitted by members after they pay out-of-pocket what is called an “initial uninsurable amount” by one MSC ranging from $500 to $5,000 or more. To be clear, there is no legally binding contract between members and the MSC to pay bills. That does not mean that members are in so-called no man’s land regarding their medical bills. Quite the contrary; if members submit bills that are in line with the MSC’s manual, medical bills would be paid.⁸

At Liberty HealthShare, a religious-based MSC founded in 1995, for example, the shareable medical expenses are comprehensive.

And some medical expenses are not shareable, such as preexisting conditions during the first year of membership, Tier 1–3 prescriptions, dental/vision expenses, expenses other than accidents, acute illness, or injury within the first 60 days of membership. To check the specific restrictions of each exclusion, a potential employer or individual member would need to check the company’s website (https://libertyhealthshare.org/what-is-shared).

Other health care-sharing ministries include Christian Healthcare Ministries, Medi-Share Samaritan Ministries, United Refuah HealthShare, MCS Medical Cost Sharing, Altrua HealthShare, Freedom HealthShare, and Trinity HealthShare. The common components of virtually all health-share ministries are direct payment to providers from members’ savings accounts; freedom to choose doctors and hospitals in a preferred provider organization (PPO), which allows the ministry to negotiate preferred prices for medical care; members can use non-PPO doctors or facilities but may not have most or any of their bills covered.⁹

The advantages of a health care–sharing ministry are manifold, according to Liberty Health Share.¹⁰ Some of the benefits include monthly contributions determined by program options, no annual or lifetime limits, no termination after developing a medical condition, employment status does not affect membership, auditing by independent accounting firm to ensure financial stability, and members are encouraged to help other members to foster a “family” atmosphere.

The drawbacks are equally important for an employer to consider before selecting a sectarian-based health sharing arrangement.¹¹

Many regulations consider health care–sharing insurance, so consumers have little or no legal protection if a claim is not paid, coverage is denied, or the ministry goes bankrupt.

Treasury letter 2016-0051 confirms that health care–sharing ministries don’t qualify as minimum essential coverage (MEC) the ACA’s employer mandate.

There are certain restrictions and payment caps relating to preexisting conditions. Certain preexisting conditions, such as diabetes, may require a member to pay an additional monthly amount along with standard membership fees.

Because health care–sharing ministries are faith-based organizations, they can have specific rules associated with membership. For example, members might be required to attend church regularly, abstain from tobacco and illegal drugs, and attest to a specific statement of faith.

A faith-based health-sharing arrangement may not work for some or many employers and their employees given the diversity of religious affiliations in America. Nevertheless, faith-based health-sharing ministries have a niche in cost sharing arrangement universe because it fills a major need—to reduce costs based on values and “proper behavior” of members that the ministries assert would lead to lower medical expenses and thus a win–win for both employees and employers.

Another health sharing plan, Sedera, founded by English physician Tony Dale, author of The Cure for Healthcare: An Old World Doctor’s Prescription for the New World Health System, has a 45-page manual on its website explaining the basics of the nonprofit’s approach to medical sharing (https://assets.ctfassets.net/01zqqfy0bb2m/6sC6nAWP3BSPDOsdRXwi5h/7b0424fd1709e15a9422bdef2b6f0b94/Sedera_-_SELECT_Plus_Guidelines_20210901.pdf). Not only does the manual provide generic information about medical sharing but also includes details how Sedera’s guidelines would achieve the mission of the nonprofit, to provide low cost, transparent, high-quality medical care to employees and individual members. For employers who want to join a medical-sharing plan instead of the traditional third-party insurance, Sedera would be a good place to start to learn how this growing medical benefit would be a win–win for themselves and their employees.

Dr. Dale who journeyed from a London-based physician and witnessed the deficiencies of the British single-payer system to America, where he was a cash-paying patient, was appalled at the lack of transparency in medical care prices. He was determined to do something about it as a “medical entrepreneur.” Dr. Dale tried to convince Christian health care ministries to include individuals and employers from all backgrounds, not adherents of one faith. His suggestion was rebuffed. Seeing an opportunity to make health sharing more mainstream, he founded Sedera in 2014. He recounts his story about the hurdles he faced to make his nonprofit company comply with federal and state regulations. Dr. Dale’s book is a worthy addition to the growing literature on how to fix America’s expensive health care system.

At MPB Health (https://mpb.health), the following summarizes its missions: “We provide comprehensive, high-quality group health care sharing plans to manage all your health care needs and protect you from unexpected high medical expenses. This cost-effective alternative to health insurance grants you more freedom and control over the way you wish to receive care.” The company offers plans for one-person businesses, individuals, and families as well as group memberships for businesses up to 49 full-time equivalent employees.

According to the company’s website, MPB.Health stands out from the competition because it “is the only non-insurance-based, low-cost health care solution available today offering a variety of health plan options that include a full array of services to manage all your health care needs,” such as:

MPB.Health memberships pair well with direct primary care (DPC) providers, health savings accounts (for memberships including the MEC), and health matching accounts to give members ongoing support physically and to help provide the upfront costs financially. MPH.Health memberships give members a full array of services and benefits for most health care needs. Expert advisors guide clients on the best solutions and best practices for each individual or group.

Conclusion

Physician/entrepreneurs and nonphysician entrepreneurs are offering businesses another option to provide health care for their employees that is affordable, transparent, and increases choices for individuals and their families. A cost-sharing arrangement may be just what the doctor ordered to tackle the high cost of traditional insurance that is making small business, in some cases, less competitive in attracting talent. For large companies, which have more bargaining power with the big insurance companies, it behooves them to add to the bottom line without reducing employees’ benefits. In fact, a cost-sharing arrangement for large companies could make them super attractive to talent that wants more control over their medical benefits. In short, a cost-sharing arrangement may be the win–win solution that both employers and employees desire.

As we have seen in Chapter 1, a company’s culture will dictate, to a large degree, what employees will embrace to keep both morale and productivity high. For employers who would be considering a cost-sharing arrangement, representatives from faith-based and secular organizations should be invited to first speak with the human resource personnel to educate them about the strengths and opportunities of this option. If the HR folks are amenable to the idea of having employees learn about cost sharing, then I suggest depending on the size of the workforce, small groups over the course of several days during a lunch hour listen to the cost-sharing structure of each of several companies. Small groups would allow more interaction between employees and cost-sharing representatives. When it comes to a new idea about health care, employers must allay any concerns that their workforce would be worse off in a cost-sharing arrangement.

The future of employer-based insurance will have to be based on innovation and thinking “out of the box.” A cost-sharing arrangement probably has not been considered by most employers because they are either unaware of its existence or heard negative comments or remarks, from others. The best advice for entrepreneurs would be to do their due diligence to determine if cost sharing has a role to play in their employees’ benefits package.