Colorado Issues Report on Health Care Sharing Arrangements

By: HUB’s EB Compliance Team

Health Care Sharing Arrangements (“HCSAs”) (formally referred to as Health Care Sharing Ministries) are arrangements that pay or reimburse certain health care expenses, but are not health insurance. While these HCSAs predate the Affordable Care Act (“ACA”), they have grown in popularity since the ACA was enacted. Recently, in response to questions and complaints to their Department of Insurance (“DOI”), Colorado issued a report on these arrangements in the state.

Background

The tax code spells out the formal tax requirements for HCSAs, such as nonprofit status, and continuous existence and sharing of medical expenses since December 31, 1999. It also speaks to the operation of the arrangement by stating, “members…share a common set of ethical or religious beliefs and share medical expenses among members in accordance with those beliefs and without regard to the State in which a member resides or is employed”. Effectively, members of an HCSA have a common set of beliefs and pay each other’s medical expenses. The mechanics vary, but typically, the medical expenses are submitted to the HCSA who then bills or solicits dues or donations from the members.

HCSAs are not insurance and are not regulated by the states. Thus, HCSA membership does not provide the same protections that regulated insurance coverage provides. This can mean, for example, that HCSAs can exclude items like preventive care, mental health treatment, contraceptives, and coverage for pre-existing conditions. Additionally, HCSAs may have deductibles higher than the ACA allows insurance to have, and annual maximums the ACA does not allow. Payment of claims is not guaranteed and depends entirely on plan terms, and whether other members participate in the sharing. Finally, HCSAs do not have minimum capital requirements and do not have access to state solvency backstops, so sometimes claims will not be paid in full.

Colorado Report

Colorado House Bill 22-1269 requires HCSAs to report data annually to the DOI to better understand and collect information about the HCSAs operating in Colorado. Sixteen HCSAs reported their 2021 info to the DOI and their data is included in the state report. Reporting was not mandatory, and some HCSAs reported limited data. Therefore, the findings of the report don’t capture all HCSA enrollment in the state.

Several HCSAs reported both individual and employer groups enrolling in their arrangements. The average participating employer only had 13 individuals (both employees and dependents) enrolled, which indicates smaller employers are most interested in these arrangements, yet general interest remains limited.

On the financial side, HCSAs reported receiving roughly $360 million in claims while collecting just $97 million in fees, shares, dues and other charges and ultimately paying $131 million in costs. The wide variance in claims received and claims paid is due to duplicate claims, ineligible claims, negotiated discounts, and amounts attributable to member responsibility. Since many HCSAs operate in multiple states, the fact that the reporting HCSAs collected less than they paid out in Colorado likely indicates these expenses were paid using amounts collected from members in other states. Ultimately the report indicates HCSAs paid roughly 74% of eligible expenses.

Takeaways

The Colorado report provides and interesting snapshot of HCSAs although ultimately the data is limited due to reporting not being mandatory. A not insignificant number of Colorado citizens have turned to HCSAs to cover some portion of their medical costs. This shows that even with the availability of employer sponsored plans, individual plans and premium tax credits, individuals are open to other, non-traditional options.

The report also shows that these non-traditional options do not come without risk. Since HCSAs are not insurance and are not regulated as insurance, there is no guarantee medical expenses will be paid or shared. As the report indicates, 26% of the otherwise eligible expenses were not paid by the arrangements, leaving the members individually responsible.

In addition, the various exclusions and limitations imposed by HCSAs increases the likelihood members will have expenses that simply are not eligible under the arrangement. Many of these expenses, such as those attributable to preexisting conditions, contraception coverage, and mental health coverage are covered under traditional medical insurance. If HCSA members do not fully understand these exclusions and limitations they find themselves unexpectedly responsible for expenses that would normally be covered.

Reminder for Employers

For employers, contributing to HCSAs can present its own set of risks. While a full discussion of these is outside the scope of this article, employers should be aware that HCSAs do not count as employer-sponsored coverage for purposes of the ACA rules, meaning that employers could owe play or pay/shared responsibility penalties even if they offer to pay for part of HCSAs. Additionally, while HCSAs themselves are not subject to ERISA, contributing to an HCSA could be treated by the US Department of Labor as an ERISA plan. This would bring with it a host of additional obligations (including certain ACA compliance mandates) that the HCSA would not satisfy.

If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.

NOTICE OF DISCLAIMER

Neither Hub International Limited nor any of its affiliated companies is a law or accounting firm, and therefore they cannot provide legal or tax advice. The information herein is provided for general information only and is not intended to constitute legal or tax advice as to an organization’s or individual's specific circumstances. It is based on Hub International's understanding of the law as it exists on the date of this publication. Subsequent developments may result in this information becoming outdated or incorrect and Hub International does not have an obligation to update this information. You should consult an attorney, accountant, or other legal or tax professional regarding the application of the general information provided here to your organization’s specific situation in light of your or your organization’s particular needs.