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Safety Net Health Plans Decry Regs on Medical Care Arrangements

AUG. 10, 2020

Safety Net Health Plans Decry Regs on Medical Care Arrangements

DATED AUG. 10, 2020
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August 10, 2020

Commissioner Charles Rettig
Internal Revenue Service (IRS), Room 5203
Department of Treasury
P.O. Box 7604
Ben Franklin Station
Washington, DC 20044

RE: REG-109755-19, Certain Medical Care Arrangements

Dear Commissioner Rettig:

The Association for Community Affiliated Plans (ACAP) respectfully submits comments in response to the proposed rule “Certain Medical Care Arrangements.”

ACAP is a national trade association representing 77 not-for-profit Safety Net Health Plans (SNHPs). Collectively, ACAP plans serve more than 20 million people through Medicaid, Medicare, the Marketplaces, and other publicly-supported coverage programs. Our mission is to support our member plans' efforts to improve the health and well-being of people with low incomes and with significant health care needs.

Summary of ACAP's Comments

ACAP responds to parts of the proposed Certain Medical Care Arrangements rule (Proposed Rule) that are particularly relevant to both SNHPs and the consumers they serve. Specifically, our comments focus on advancing policies that reduce consumer harm and confusion regarding health care sharing ministries and direct primary care arrangements which operate, both in word and deed, as alternatives to comprehensive health insurance.

In particular, we wish to draw attention to the following points in our comments:

  • Health Care Sharing Ministries: Health care sharing ministries (HCSMs) should not be recognized for Internal Revenue Code (Code) purposes or otherwise as eligible medical insurance or medical care. HCSMs are not insurance and labeling them as such will only exacerbate consumer confusion and negate the intent behind so-called “safe harbors” under state insurance law. However, ACAP agrees with IRS's conclusion that HCSM membership payments are not qualified medical care expenses as they are not paid directly to providers for medical services (and often go towards overhead). While the Proposed Rule correctly precludes HCSM members from contributing to a Health Savings Account (HSA), we disagree with the proposal to allow an HRA, particularly an EBHRA, to reimburse membership payments out of concern that doing so provides little to no protection to employees who may not always be enrolled in comprehensive coverage offering minimum value. Finally, to the extent the Proposed Rule is finalized, we recommend adopting the proposed “health care sharing ministry” definition as it is consistent with the existing definition in the Code and is a reasonable minimum “floor” to help facilitate federal and state oversight of HCSMs.

  • Direct Primary Care (DPC) Arrangements: ACAP opposes the proposal to allow DPC arrangements to qualify as medical insurance for purposes of deductibility because doing so is inconsistent with the spirit — and sometimes the letter — of several state laws and will lead to consumer confusion. If DPC arrangements receive recognition as deductible medical expenses in the final rule, they should only be recognized as medical care.

  • Government-sponsored Health Care Program Premiums: ACAP questions the utility and policy goals behind the proposal to treat amounts paid for government-sponsored health care programs as deductible medical insurance. We believe premiums for these programs should remain consistent with current legal maximums and never exceed the current income threshold for deductibility in the first place as many of these enrollees — particularly Medicaid and CHIP enrollees — are low-income. Allowing such a deduction is misplaced and could invite policies that erode premium and cost-sharing protections for programs Congress designed to protect the most vulnerable.

Expanded Comments

ACAP's comments are expanded below, with additional background.

Health Care Sharing Ministries

Deductibility of HCSM Membership Payments under Sec. 213(d)(1)(D) (“Medical Insurance”)

IRS proposes to include membership in an HCSM as deductible amounts paid for medical care under section 213(a) of the Internal Revenue Code. Specifically, the Proposed Rule would recognize that payments for membership in an HCSM that shares expenses for medical care, as defined in section 213(d)(1)(A), are payments for medical insurance under section 213(d)(1)(D).

ACAP strongly disagrees with recognizing HCSMs as either section 213(d)(1)(D) medical insurance (as proposed) or section 213(d)(1)A) medical care. Allowing HCSMs to be insurance, even for the narrow objective of recognition under the tax code, will add to consumer confusion and undermine the purpose of “safe harbor” laws that exempt HCSMs from regulation under the state's insurance code, as discussed further below.

As a general rule, for the approximately 20 states that have not adopted a safe harbor from the insurance code for HCSMs, an HCSM can be exempt from insurance regulation if its program does not constitute a contract of insurance.

First, HCSMs consistently claim in marketing and website materials that they are not insurance.1 In addition, HCSMs disclaim any obligation to ensure that a member's expenses will be paid, even if the expense is eligible for sharing under the member's guidelines and after an applicable “deductible” (or annual unshareable amount) is satisfied. Rather, HCSMs generally assert that an individual's health care expenses are paid through the voluntary contributions by ministry members, rather than because of an assumption of risk assumed by the ministry itself.2

Second, in practice, as documented by several media stories, several HCSMs have shown their declination as insurance by refusing to help members satisfy their out-of-pocket expenses, even when such expenses are typically covered insurance benefits under an ACA-compliant insurance policy or employer-sponsored plan. For example, Liberty Healthshare members reportedly did not receive payment for flu shots and a child's medical tests.3 In addition, Christian Healthcare Ministries' guidelines prohibit silver and bronze members from submitting any prescriptions or routine doctors' care bills, except doctors' bills incurred while the member is a hospital inpatient or outpatient.4

If HCSMs are recognized as medical insurance for purposes of section 213(d)(1)(D), we suspect that their marketing and communications to current and prospective members will change to reflect this fact. Just as HCSMs have advertised for several years that they meet the definition specified in Code section 5000A(d)(2)(B)(ii) for purposes of allowing members to avoid the individual responsibility payment,5 so will they advertise that they are deductible medical insurance if this proposal is finalized. It is not realistic to expect consumers will understand the nuances of the incongruity caused by the rule's treatment of allowing HCSMs to be insurance for tax purposes (and advertise as such), while being non-insurance for financial security and consumer protection purposes.

Another issue with the proposed approach is that it may undermine the utility and availability of state safe harbors for HCSMs which are designed to exempt them from regulation under the state's insurance code so long as the ministries do not claim to be insurance nor are considered insurance to the consumer. Specifically, 13 state laws require an HCSM to inform the consumer that the program should “never be considered insurance.”6 If the HCSM is considered insurance for tax purposes and educates its members of this fact, it is arguably impossible for an HCSM to continue to meet this consumer protection standard and stay exempt from state insurance law.

Bottom line, while we understand that the goal of the Executive Order underpinning this rule is to “empower” consumers by incentivizing HCSMs, this policy will result in further consumer confusion and potential harm when consumers believe the program in which they are participating is insurance. A better approach is simply to not finalize the Proposed Rule.

We also agree with IRS's conclusion that HCSM membership payments would not qualify as medical care under section 213(d)(1)(A) because expenses are not paid to the provider directly. Indeed, in many cases, the membership fee is used for administrative expenses of the HCSM and not used to facilitate direct sharing of medical care bills.7

Use of Health Reimbursement Arrangements (HRAs) for HCSM Membership

IRS proposes that an HRA, including an HRA integrated with a traditional group health plan, individual coverage HRA, Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), or an excepted benefit HRA (EBHRA) may reimburse payments for membership in an HCSM as a medical care expense under section 213(d).

Because most of these HRAs — namely, the first three listed above — generally must be used with more comprehensive benefit designs, ACAP has fewer concerns about consumers lacking financial protection from their participation in an HCSM. However, one exception is the excepted benefits HRA, which is capped at $1,800 annually for 2020 and can be used with non-comprehensive coverage. Specifically, an employer offering an EBHRA may offer limited benefit (or “skinny”) minimum essential coverage (MEC) to employees and satisfy its obligations. However, employees do not have to enroll in this skinny MEC and can instead use all of their HRA funds towards HCSM membership. Indeed, an HCSM-lookalike “medical cost sharing” entity already markets to employers to offer a combination medical cost sharing-skinny MEC option to employees.8 It is reasonable to think some HCSMs will follow this example and have enhanced ability to generate employer business with the EBHRA option.

From a policy perspective, employees and their families are guaranteed greater financial protection and ultimately better health care if they are enrolled in comprehensive coverage rather than an HCSM. To illustrate, the average percentage of employer contribution to premiums in 2019 was $14,561 or 82% of total premium, and 99% of covered workers are in a plan that partially or totally limits the cost-sharing that an enrollee must pay in a year.9 HCSMs make no such guarantees. ACAP has long supported comprehensive coverage requirements and is concerned the impact such erosion of the employer coverage would have on consumers.

If IRS finalizes this HRA proposal, we recommend that IRS condition the use of HRA funds towards an HCSM on the HCSM member's enrollment in comprehensive coverage offering minimum value, rather than simply being offered coverage that meets MEC but fails to provide meaningful consumer protection.

Health Savings Account (HSA) Contribution Eligibility Requirements

While ACAP disagrees with the Proposed Rule's treatment of HCSMs as medical insurance, we agree that if the proposal is finalized, it would follow that membership in an HCSM would preclude an individual from contributing to an HSA. This policy is consistent with the statutory prohibition under section 223(c) of the Code on contributing to an HSA while having other non-exempted coverage beyond the HSA-qualified plan. This policy correctly places HCSMs on a level playing field with other non-exempted coverage. HCSMs simply do not fall under the existing categories for exempted coverage under section 223(c)(1)(B).

Definition of HCSM

IRS requests comments on its proposal to adopt a definition of a health care sharing ministry, for purposes of section 213, from the existing definition under section 5000A(d)(2)(B)(ii). This provision generally provides that an individual who is a member of an HCSM meeting the statutory definition is exempt from the individual shared responsibility payment (currently set at $0) under the Affordable Care Act.

ACAP recommends that the IRS adopt the existing statutory definition under section 5000A(d)(2)(B)(ii). Maintaining consistency in a minimum federal standard HCSMs must meet for various tax code recognition is critical to mitigating the entry of potential bad actors, assisting with federal and state oversight and facilitating greater accountability and consumer protection.

For example, Washington State found that an entity marketing itself as an HCSM was actually formed in 2018 and had no members, and instead utilized an unlicensed insurance producer to operationalize the program.10

Direct Primary Care (DPC) Arrangements

Deductibility of DPC Arrangement Payments under Sec. 213(d)(1)(A) or (D)

The Proposed Rule would allow payments to DPC arrangements that meet the proposed definition to qualify as an expense for medical care under section 213(d) regardless of whether the arrangement is for medical care under section 213(d)(1)(A) or medical insurance under section 213(d)(1)(D).

To the extent IRS finalizes this proposal, we believe DPC arrangement payments should only qualify as medical care under section 213(d)(1)(A). Similar to HCSMs, DPC arrangements should not qualify as medical insurance in the interest of reducing consumer confusion and consistency with historical state law treatment of such arrangements. First, while we reiterate that it is ultimately a state's determination whether a specific contract constitutes insurance in practice, DPC arrangements market themselves to consumers as non-insurance.11 Second, like HCSMs, DPC arrangements have availed themselves of specific state legislation that aims to distinguish them from insurance. For example, the Utah law requires the DPC agreement to prominently state in writing that the retainer agreement is not health insurance.12

If DPC arrangements qualify as medical insurance for purposes of section 213(d)(1)(D), it is almost inevitable that they will market this fact to prospective and current consumers who may fail to appreciate the nuance behind this policy. Therefore, any recognition of DPC arrangement payments should be limited as payments for medical care.

Government-sponsored Health Care Program Premiums

Deductibility of Premium Payments under Sec. 213(d)(1)(D) (Medical Insurance)

Finally, regarding the proposal to allow amounts paid for coverage under government-sponsored health care programs to qualify as medical insurance under section 213(d)(1)(D), ACAP does not believe the change is necessary or appropriate for all government-sponsored programs referenced, particularly Medicaid and CHIP. These programs must stay affordable for the most vulnerable low-income individuals and families to fulfill their statutory purpose. Specifically, under 42 C.F.R. §447.56(f), Medicaid premiums and cost sharing incurred by all individuals in the Medicaid household may not exceed an aggregate limit of 5 percent of the family's income applied on either a quarterly or monthly basis, as specified by the agency. (emphasis added) IRS cites no data regarding how many households with members enrolled in Medicaid or CHIP itemize their deductions today and we therefore question the utility behind the policy.

More fundamentally, we are concerned that codifying this deduction in regulation will incent Medicaid and CHIP programs to increase premiums or charge enrollment fees. Under no circumstances, whether under existing Medicaid regulations or pursuant to sound public policy, should the cost of coverage for these programs ever exceed the currently set 7.5% adjusted gross income threshold for a deduction. Therefore, we ask that IRS withdraw this proposal, at least with respect to Medicaid and CHIP, until additional research and analysis is performed in consultation with relevant stakeholders including the Department of Health and Human Services, the Medicaid and CHIP Payment and Access Commission (MACPAC), and state Medicaid programs.

Conclusion

ACAP thanks IRS for its willingness to consider the aforementioned issues as part of the administrative record, including the cited resources hyperlinked or otherwise referenced throughout. For additional questions or comments, please do not hesitate to contact Heather Foster (202-204-7508 or hfoster@communityplans.net).

Sincerely,

Margaret A. Murray
Chief Executive Officer
Association for Community Affiliated Plans

FOOTNOTES

1For examples, (1) “CHM isn't insurance, and doesn't use insurance agents.” Christian Healthcare Ministries, available at: https://www.chministries.org/ (last accessed July 29, 2020); (2) “Medi-Share is not insurance. It is a not-for-profit ministry and is not guaranteed in any way.” Medi-Share, available at: https://mychristiancare.org/medi-share/ (last accessed July 29, 2020); and (3) “Samaritan Ministries is not insurance.” Samaritan Ministries Guidelines, 8, available at: https://samaritanministries.org/uploads/documents/SMI-Guidelines-July2020_download.pdf (last accessed July 29, 2020). Christian Healthcare Ministries, Med-Share, and Samaritan are among the largest HCSMs in operation today based on membership.

2For examples, (1) Medi-Share's guidelines state, “Each Medi-Share Member is solely responsible for the payment of his or her own medical bills at all times. Neither CCM nor other Members guarantee or shall be liable for the payment of a Member's medical bill. Further, no Member may or shall be compelled to make sharing contributions. If sharing occurs, the shared medical bills are paid by the Member that incurred the bill solely from voluntary contributions of Members, not from funds of CCM itself.” Available at: https://mychristiancare.org/globalassets/media/medi-share/medi-share-guidelines.pdf (last accessed July 29, 2020); and (2) Samaritan Ministries' guidelines state, “Health care sharing is an arrangement where members share one another's medical expenses through voluntary giving, not because of legal obligation.” Available at: https://samaritanministries.org/uploads/documents/SMI-Guidelines-July2020_download.pdf (last accessed July 29, 2020).

3Reed Abelson, “It Looks Like Health Insurance, but It's Not,” The New York Times, January 2, 2020, https://www.nytimes.com/2020/01/02/health/christian-health-care-insurance.html (last accessed July 29, 2020).

4JoAnn Volk, Emily Curran, and Justin Giovannelli, “Health Care Sharing Ministries: What Are the Risks to Consumers and Insurance Markets?,” The Commonwealth Fund, August 8, 2018, https://www.commonwealthfund.org/publications/fund-reports/2018/aug/health-care-sharing-ministries (last accessed July 29, 2020).

5For examples, Medi-Share's website states, “Members in a Health Care Sharing Ministry such as Medi-Share are exempt from the individual mandate in the Patient Protection and Affordable Care Act found in 26 United States Code §5000A(d)(2)(B).” Available at: https://mychristiancare.org/medi-share/ (last accessed July 29, 2020).

6See e.g., Alabama Code sec. 22-6A-2, Alaska Statute 21.03.021(k), Arizona Statute 20-122, Arkansas Code 23-60-104.2, Georgia Statute 33-1-20, Idaho Statute 41-121, Illinois Statute 215-5/4-Class 1-b, Indiana Code 27-1-2.1, Maine Revised Statute Title 24-A, §704, sub-§3, Mississippi Title 83-77-1, North Carolina Statute 58-49-12, South Dakota Statute Title 58-1-3.3, Texas Code Title 8, K, 1681.001. Each of these laws require a consumer notice stating, among other things, “participation in the organization or a subscription to any of its documents should never be considered to be insurance.”

7For example, Samaritan's guidelines state as many as three months of fees go towards administrative expenses, plus the initial membership fee: “One month each year every Samaritan household sends their monthly share amount to the Samaritan office. In addition, new members send a start-up administrative fee along with their first month's share to the office. The start-up administrative fee is non-refundable. In their first year, new members may also be asked to send their second and occasional third month's shares to the office, depending on administrative needs.” Available at: https://samaritanministries.org/uploads/documents/SMI-Guidelines-July2020_download.pdf (last accessed July 29, 2020).

8Sedera, “Sedera Members can meet the Affordable Care Act (ACA) standard separately through an employer-sponsored self-insurance arrangement that includes Minimum Essential Coverage (MEC). This plan provides coverage for preventive services and well-care visits and keeps you in compliance with the law.” Available at: https://sedera.com/medical-cost-sharing/ (last accessed July 29, 2020).

9The Kaiser Family Foundation, Employer Health Benefits 2019 Annual Survey, available at: http://files.kff.org/attachment/Report-Employer-Health-Benefits-Annual-Survey-2019 (last accessed July 29, 2020)

10Washington State Office of the Insurance Commissioner, “Kreidler bans Trinity Healthshare, collects $150,000 fine,” available at: https://www.insurance.wa.gov/news/kreidler-bans-trinity-healthshare-collects-150000-fine. (last accessed July 29, 2020). Several other states have taken action and reached settlements with Aliera and Trinity.

11See for example, the website of the Direct Primary Care Medical Home Association: “Direct primary care (DPC) is primary care offered directly to patients, without the use of insurance. It involves patients paying directly for their health care services in either a monthly, yearly, or daily format between patients and health care providers.” https://www.dpcmh.org/about (last accessed July 29, 2020).

12UT Sec. 31A-4-106.5. See also Texas Occupations Code Sec. 162.253: “DIRECT PRIMARY CARE NOT INSURANCE.

(a) A physician providing direct primary care is not an insurer or health maintenance organization, and the physician is not subject to regulation by the Texas Department of Insurance for the direct primary care.

(b) A medical service agreement is not health or accident insurance or coverage under Title 8, Insurance Code, and is not subject to regulation by the Texas Department of Insurance.

(c) A physician is not required to obtain a certificate of authority under the Insurance Code to market, sell, or offer a medical service agreement or provide direct primary care.

(d) A physician providing direct primary care does not violate Section 1204.055, Insurance Code.”

END FOOTNOTES

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