Employer Liability Under Health Care Sharing Ministries Plans

Under the Affordable Care Act (ACA), members belonging to a certain number of organizations known as Health Care Sharing Ministries – sometimes called Christian Health Plans or Christian Ministries Plan – were granted an exemption from the personal tax penalty (up to 2.5% of one’s household income in 2016 and beyond) for not having a qualified plan under the Act. The basic concept behind these plans is to have those who meet certain membership qualifications (attend church regularly, do not smoke or drink, declare their belief in the Trinity, etc.), co-op and share in the costs of the other participants’ medical expenses. Sometimes this is accomplished by a level monthly contribution to the sponsoring organization, other times participants are asked to write a check directly to another member to cover their medical expenses.

While originally targeting individuals, these plans have gained some momentum as a substitute to an employer -sponsored, group medical plan. This paper primarily focuses on the dangers and potential legal pitfalls an employer should consider before using a Christian Ministries Plan as a replacement for their group health insurance.

The legal term in Latin, caveat emptor, or Let the buyer beware, applies here. In order to qualify for membership you must be screened for medical conditions and can be rejected if you are in poor health. Oftentimes pre-existing conditions are not covered until a person has been on the plan for twelve months. Both of these are prohibited practices for employer-sponsored, fully insured, and self-funded, medical plans. Thus employers may be subjecting themselves to potential legal liability and participants may inadvertently be assuming personal financial risk when using these programs.

It is a well-known insurance underwriting fact that when a program does not cover pre-existing conditions, the plan will run very profitably as long as there is a constant flow of new members whose claims can be denied because of conditions that existed before joining the plan. Profitability also occurs through the use of medical questions where only the healthiest people are accepted into the plan. If new membership declines and the “pool of members” becomes stagnant, claims and costs can begin to soar as these two “underwriting effects” wear off. As costs rise, the healthiest participants, being rational consumers, have every incentive to drop the coverage altogether or find other, less expensive alternatives. Decades of experience have proven that a pattern of healthy people abandoning a plan, leaving those with medical conditions to face rapidly increasing contributions, creates an almost irreparable death spiral. At that conjuncture, new, healthy participants who have no coverage for pre-existing conditions must be added at an aggressive rate in order to stave off an unavoidable plan insolvency. This can be problematic as many would contend that there are a finite number of people either eligible or interested in a Christian Health Plan, including healthy participants who: are willing to subject themselves to pre-existing conditions; are willing to attest or adhere to the required Christian values; are aware these plans even exist; or, do not consider it a viable option because they are receiving a subsidy under their employers plan or the Affordable Care Act. Thus it is plausible that it only is a matter of time before the pool of applicants is exhausted and a death spiral occurs.

While Martin Luther posted 95 theses, here is a list of 10 reasons why our agency and its licensed and credentialed professionals cannot represent this product in any manner:

• Because the Health Care Sharing Ministries offering is not a fully insured product, there is no protection or oversite from the states’ Insurance Departments. Complaints to the Insurance Department in your state will not be addressed because they have absolutely no jurisdiction over these organizations;
• Because this is not an insured product, it is not covered under any state-guaranteed funds, which promise to pay policyholders in the case of bankruptcy or insolvency of an insurance company. In Utah, this is the Utah Life and Health Insurance Guaranty Association;
• The normal fallback federal regulatory agency for health insurance complaints is the Department of Labor. They regularly deal with complaints on self-funded plans. They have no oversight or regulatory authority over Heath Care Sharing Ministries offerings. Complaints lodged here will go unheard and unresolved;
• Employers who replace their group health plan with a Health Care Sharing Ministries offering may be at risk for a lawsuit from their employees should the payments fall short of their expectation/promise, has unreimbursed claims or the organization files for bankruptcy;
• Because the Health Care Sharing Ministries offering is not insurance, they are not covered by an agent’s Errors and Omissions policy for lack of performance, leaving the consumer and an agency exposed to undue liability exposure;
• A recent IRS ruling regarding Health Care Sharing Ministries plans (https://www.irs.gov/pub/irs-wd/16-0051.pdf) regarding employer contributions to these plans, states: “the law does not exclude employer payment for the cost of employee participation from the employee’s gross income. Instead, the law considers it as taxable income and wages to the employee.” This clarification reminds us that an employee must pay Federal, State, Local and Social Security Taxes and an employer must pay the matching Social Security and Unemployment taxes. This could add a 30–50%+ cost differential to the Christian Ministry Plan. Additionally, because many Christians tithe at 10% of their wages, this additional income could take a bigger bite out of the employee’s purchasing power;
• Because these plans reimburse claims at Medicaid,plus a certain percentage, more and more hosptials and physicians are refusing to accept these reimbursements as “payment in full.” Before being admitted to most any facility, a patient typically signs a mountain of paperwork including an agreement to be personally liable for any expenses not covered by their insurance. The Christian Ministry Plan is not health insurance and there is no provider network with pre-negotiated discounts. We are seeing a greater number of medical providers collecting the difference.
• If an employer dismantles their group health plan and substitutes a Christian Ministries Plan, there is a potential that it may be determined that the Christian Ministries Plan is a group plan. Case law has shown that individual plans which are sponsored by and paid for directly or indirectly by an employer (i.e., via direct contributions or through a pay raise) are considered group plans. Employer-sponsored plans need to provide coverage under laws that are required of group plans. For example, the Pregnancy Act of 1978 (which amended the Civil Rights Act of 1964) requires that all employers with 15 or more total employees (full or part-time) treat pregnancy the same as any other medical condition. If an employee or their eligible spouse is denied coverage because they are currently pregnant (pre-existing condition) or limitations are placed on the plan coverage (hospital day limits, dollar amount limits or claim denial) because of their pregnancy, they may run afoul of the Pregnancy Act and risk a civil rights investigation/lawsuit.
• A large employer (50 or more Full-Time Equivalent Employees) could not report a Christian Ministries Plan as an offer of health coverage so they would be subject to the “play or pay” penalty ($3,000.00 per employee per year) because this offering is not considered insurance or minimal essential coverage under the Affordable Care Act;
• Finally, any employer could also risk a civil lawsuit or investigation from the Department of Labor/Office of Civil Rights under the auspices of discrimination for employees failing to qualify for coverage. Furthermore, employees who fail to qualify for the plan for tobacco and alcohol use, which is considered a health factor, could bring scrutiny and prosecution from the Department of Health and Human Services because discrimination based on a health factor is also prohibited.

The bottom line is that these programs are not insurance and rely totally on the trust and goodwill of the other members in the co-op. Should there be an economic downturn or any number of other reasons where a substantial number of members leave the plan, there is tremendous potential that claims may be unpaid as promised. Furthermore, without regulatory oversite for these offerings, no liability protection for an agent or agency and the potential of a federal discrimination investigation/lawsuit for employers who offer a Health Care Sharing Ministries plan as a substitute for a group health plan, we cannot in good conscience recommend or place these offerings for our valued clients or prospects.

©Copyright 2016 by Michael Deru and Fringe Benefit Analysts, LLC. Reproduction permitted with attribution to the author.