By Aobo Dong
The passage of the Republican tax reform bill affects the health care industry in ways that might be confusing and unpredictable for tens of millions of Americans. Due to political rhetoric and inaccurate portrayal of the bill, it seems as if the Individual Mandate – an essential element in the ACA – has been fully repealed. Nonetheless, as Health Affairs rightly points out, Section 5000A still remains in the statute to require “minimal essential coverage” for all individuals. Therefore, although the tax bill repealed the tax penalty for not having insurance coverage, the law still technically mandates individuals to acquire health insurance. Moreover, the tax penalty repeal will not take effect until the 2019 tax year, so individuals who are uninsured for more than 2 months in the 2018 tax year may still be liable for paying the tax penalty, unless future laws and regulations, or an executive order from Trump, indicates otherwise.
Under the new regulatory landscape, what could be some potential repercussions for Health Care Sharing Ministries (HCSMs)? These ministries, largely run by evangelical Christians who believe in the merit of private cost sharing, have been benefiting from the Individual Mandate since the inception of the ACA. Under Section 5000A, HCSM members are exempt from paying the tax penalty. The dearth of legal exemptions available and the widespread dislike of Obamacare among white evangelical communities in America likely fueled the rapid growth of HCSMs in recent years. Members pay their monthly “shares” to each other to cover health insurance expanses, without going through a central insurance or governmental agency for redistribution.
The exact impact the new tax law has on HCSMs is uncertain. Samaritan Ministries, one of the largest HCSMs, reminded their members that they still need to claim their ACA exemption on their 2017 tax returns, since the tax penalty is still in effect for both the 2017 and 2018 tax years. This is factually accurate. The ministry also consoled their members that:
There are many friends of Health Care Sharing Ministries in Congress who want clarification and changes in the tax laws beneficial to our members. There is a good chance for such changes to occur with the help of our members contacting their representatives in Congress. We will contact our members when we need your help.
This statement illustrates the political capital HCSMs may still wield in Congress. Given the successful inclusion of their exempt status written into the ACA, this should not be surprising. “Many friends of HCSMs in Congress” will likely find ways to secure the consumer stream of this health care insurance alternative.
Yet, these statements do not address a major issue facing the HCSM industry. That is, the repeal of the tax penalty might remove one of the key incentives for joining HCSMs. It is not difficult to imagine that, without tax penalties, many young and healthy members could simply pull the plug and join the class of the uninsured. This may not happen in 2018, but beginning in 2019 when the tax penalty officially withers away, the membership growth and retention rates could be negatively impacted.
Nonetheless, I’d like to suggest a scenario in which the HCSM member base remains strong or even grows under the new health care landscape. To best predict the future of HCSMs, it is important to know the socio-economic demographics that these ministries most appeal to. For whom HCSMs make the most financial sense? It is not the poorest Americans below or hovering above the Federal Poverty Level, for they typically qualify for the lowest-cost plans under Medicaid or the most generous subsidies to purchase ACA plans. Rather, middle-class Americans whose household income exceeds 400% FPL may find HCSMs financially viable and appealing. Since they do not qualify for any ACA subsidies, the cost of purchasing plans directly from private insurers could be too much to bear, especially when they don’t have access to employer-sponsored plans. The NYT has already reported on this problem, which exists long before the passage of the new tax bill. I will offer another example to illustrate these soaring costs.
In California, a family of three may be paying thousands of dollars per month out of their own pocket just to purchase a “minimum coverage” or catastrophic plan. According the newest income guideline of Covered California, the state’s ACA exchange market, premium assistance is only offered to households with an income ranging from $20,420 to $81,680 (for a family of 3). If a family has an income of $82,000, slightly above the 400% FPL, the cheapest plan they could purchase is a “Bronze 60 HMO” plan with a premium of $1315.55 after $0.00 tax credit. They have to pay 100% for generic drugs, and the yearly deductible is a staggering $12,600. To purchase a Silver PPO plan, the family needs to pay over $3000 per month. If their income is slightly under $81,680, they might be eligible for a negligible amount of federal subsidy, and pay similar high rates. In either case, these families could be spending more than a third of their monthly income on health premiums, more than the recommended level of spending on housing.
Moreover, for sole proprietors and small business owners who are self-employed and have unpredictable income projections, the insurance options offered through the exchange can cause headaches. If a family started a new small business, and qualifies for a sizeable federal subsidy due to a conservative income projection might need to pay back tens of thousands of premium subsidies if their income turned out to be much higher than expected. Some may even need to deliberately contain their income revenues just to afford a good health insurance for their families.
For the types of families mentioned above, HCSMs may appear to be a good bargain. With monthly “shares” ranging from $300 to $600, they may opt out from the volatile traditional insurance market all together and enroll in these cost-sharing plans. Of course, these HCSM plans put significant restrictions on who are eligible and what services are deemed “sharable,” but they still make much better financial sense than these high-cost catastrophic plans offered through private insurance companies or ACA exchanges. It is also important to point out that traditional insurance premiums are likely to rise continuously over the next few years. The Congressional Budget Office estimated that under the new tax plan, premiums will increase by 10% for this reason alone. And out of the 13 million additional uninsured Americans the CBO predicted by 2027, how many would join HCSMs? Therefore, the “many friends of HCSMs” in Congress might already be helping HCSMs without knowing it by letting Obamacare self-destruct. Without a deliberate effort to curtail rising premiums, the so-called expanded “free choice” for Americans under the repeal of the Individual Mandate could be extremely limited.