Health share plans and traditional insurance differ in terms of operation, pros and cons, costs, best fits, and tax implications. Health share plans are non-profit entities where members share medical costs, while traditional insurance involves paying premiums for coverage. They each have their own pros, cons, and cost differences that can make one a better fit for certain individuals. Tax implications also differ, with health share plans not offering the same tax benefits as traditional insurance.
What Are Health Share Plans And How They Work?
Let's delve into the world of Health Share Plans - a novel, non-insurance approach to managing healthcare costs. (Mayo Clinic). These plans, also known as health care sharing ministries (HCSMs), operate on a model in which members share the cost of each other's medical expenses rather than paying premiums to an insurance company. It is based on a community approach, with people uniting to support one another's medical needs.
So, how do these plans work? Each member pays a monthly 'share' into a common pool handled by the HCSM. When a member incurs medical expenses which he or she cannot afford, these costs are then compensated using the common pool. The logic relies in that the monthly shares provided by all the members collectively cover all the necessary expenses (American Journal of Public Health). It's a system necessitating trust and co-operation amongst its members.
Notably, health share plans may vary in their specifics; for instance, Christian Healthcare Ministries and Samaritan Ministries mandate members to lead lifestyles in line with specific religious principles. However, there are also secular health share plans like Sedera, which don't base their principles on religious tenets (NCBI). Despite their differences, they share the fundamental concept of community-based sharing of healthcare costs.
What is Traditional Insurance?
Switching gears, we explore Traditional Insurance – a more regular, commercely-operated method of covering healthcare expenses (National Association of Insurance Commissioners). In this case, the individual or employer pays premiums to an insurance company against a promise that they'll cover certain healthcare costs when needed.
In essence, the operation of traditional insurance relies on risk pooling. Individuals pay predictable periodic premium payments to an insurer, in return for financial protection against unpredictable medical costs. When an insured individual incurs healthcare costs covered under their policy, the insurance company steps in to pay for those costs (National Library of Medicine).
As examples of traditional insurance, we can highlight popular plans such as Blue Cross Blue Shield, Aetna, and Cigna. Although their benefits may vary in detail, they all function on the premise that an individual pays premiums in order to receive coverage for healthcare costs from the insurer.
Pros and Cons of Health Shares vs. Traditional Health Insurance
One of the significant advantages of health share plans compared to health insurance is the lower cost. Health share plans can be far cheaper than traditional insurance. A study by Health Markets has shown these plans can cost as much as half of traditional insurance premiums. However, before jumping on the bandwagon, consumers must be aware of the limitations: chief among them; there's no guarantee that all medical expenses will be covered.
Moreover, the nature of risk-sharing in health share plans predicates another clear advantage: fostering a community centric approach towards healthcare costs. This forms a striking contrast to traditional health insurance plans which often feel impersonal and are dictated by what can feel like a faceless bureaucracy.
| Feature | Health Share | Health Insurance |
|---|---|---|
| Regulation | Not regulated by state or federal insurance laws. | Regulated by state and federal insurance laws. |
| Pre-existing conditions | May exclude or limit coverage for pre-existing conditions. | Cannot exclude or limit coverage for pre-existing conditions. |
| Network requirements | Typically do not have network requirements. Members can see any doctor or hospital they choose. | May have network requirements. Members must see doctors and hospitals within the plan's network to receive in-network benefits. |
| Other benefits | May offer additional benefits, such as dental, vision, and prescription drug coverage. | May offer additional benefits, such as dental, vision, and prescription drug coverage, as well as other benefits, such as life insurance and disability insurance. |
However, traditional health insurance offers some advantages that health sharing plans cannot. Its overarching edge is the certainty it provides. Unlike health share plans that don’t have to promise coverage for any care or service, traditional health insurance offers clear terms of agreement on what is covered and what is not (National Institute on Agin).
How Much Do Health Shares Cost Compared to Health Insurance?
As healthcare costs continue to rise, more Americans are considering alternatives to traditional insurance methods, specifically Health Share Plans (HSPs). According to a study by the Henry J Kaiser Foundation, the average annual premium for employer-sponsored family health insurance in America stood at $21,342 in 2020 (Source: Henry J Kaiser Foundation). This cost, which has persistently escalated over the years, can place a considerable burden on many households, prompting the increased popularity of HSPs.
Health Share Plans propose a more communal and low-cost approach to healthcare. In this system, members contribute monthly shares into a collective pool which is then utilized to pay for medical expenses of other members. A research conducted by Alliance for Shared Health (2021) found that in many cases, the cost of monthly shares in an HSP were significantly lesser compared to traditional monthly insurance premiums (Alliance for Shared Health).
| Feature | Health Share | Health Insurance |
|---|---|---|
| Average Monthly Cost | $200-$500 | $400-$1,000 |
| Average Annual Cost | $2,400-$6,000 | $4,800-$12,000 |
Although HSPs maybe economical, one should consider some valuable points before making the switch. Notably, HSPs are not insurance, thus, they don’t have a legal obligation to cover the healthcare costs of their members. Likewise, pre-existing conditions may not be covered or may have a waiting period before they are included in the sharing arrangement. Notwithstanding these angles, a study by Health Affairs highlighted that up to 80% of families could potentially save on costs if they moved from traditional insurance to HSPs (Health Affairs).
Best Fit: Who Should Choose Health Share Plans or Traditional Insurance?
Healthy Independents
The Healthy Independents are typically characterized as young, healthy individuals who rarely use healthcare services. These individuals are often more suited to health share plans, as reflected in a 2019 survey by the Kaiser Family Foundation (KFF). The survey found that young adults less frequently used expensive hospital services, making them potential beneficiaries of the lower monthly costs associated with health shares (KFF, 2019).
Cost Conscious Families
Cost-Conscious Families are generally young families with children, mindful of their healthcare costs but requiring regular healthcare services like checkups, vaccinations, etc. Health insurance remains preferable for these because of the predictable and manageable co-pays and deductibles (Consumer Reports 2020). In a 2019 comparison made by eHealth between average health insurance premiums and health share monthly costs, insurance proved more economical for families in the long run.
High Healthcare Utilizers
High Healthcare Utilizers often have chronic health conditions requiring consistent medical care and prescriptions. They would benefit more from health insurance due to broader coverage for treatments and prescription aid. According to the CDC report in 2020, 60% of adults in the U.S have a chronic disease, emphasizing the importance of comprehensive coverage.
Older Adults
Older Adults often have more extensive healthcare needs due to ageing and potential chronic conditions. While health shares can offer lower monthly costs, insurance provides more assurance with a broader range of coverage. A 2019 study in the journal Health Affairs found out that older adults require more healthcare services, making health insurance a better fit.
Startup Companies
For Startup Companies, decision revolves around providing employees a beneficial package against controlling operational costs. Here, health insurance might bring more value because of its extensive network and predictable cost-sharing methods. A Forbes article cited, companies with less than 100 employees were more likely to opt for health insurance due to their predictability and network access.
Tax Implications of Health Share Plans and Traditional Insurance
Based on the historical data from The Internal Revenue Service (IRS), it becomes clear that premiums paid for HSPs may not be deducted from taxable income. This stands in sharp contrast with traditional insurance where premiums may be deducted as medical expense on Schedule A (Form 1040 or 1040-SR), as long as they exceed 7.5% of your Adjusted Gross Income (AGI). This glaring difference greatly impacts the financial decisions of those grappling with the choice between HSPs and traditional insurance.
It’s important to note that the group which feels the tax impact of health share plans most are self-employed individuals. According to the IRS, self-employed individuals are normally allowed to deduct premiums for medical, dental or long-term care insurance, but this doesn’t extend to cover health share plans. Given the number of self-employed individuals in America — reported by the Pew Research Center to be 15 million as of 2015 and speculated to be on the rise (Pew Research Center, 2015) — this is a significant population that might find traditional insurance more economical in the long run due to tax benefits.
Another area where HSPs are at a disadvantage is Health Savings Accounts (HSAs). As per the IRS, HSA contributions are only deductible if they are used to pay premiums for High Deductible Health Plans. Unfortunately, most health share plans do not qualify as HDHP, thus precluding HSP beneficiaries from leveraging HSAs.
Frequently Asked Questions
1. Are health share plans considered insurance?
Health Share Plans (HSPs) are not considered traditional insurance. While they function in a similar way, helping to share the burden of healthcare costs among a group of people, they do not come under the jurisdiction of state insurance commissioners because they are not technically an insurance product (National Association of Insurance Commissioners, 2020).
2. Can I use a health share plan with traditional insurance?
Yes, it is possible to use a health share plan alongside traditional insurance, although it may not always be practical or cost-effective to do so. Some individuals choose to maintain a high-deductible health plan for serious emergencies while using a health share plan for routine and preventive care. It's important to carefully research both options and consider your own healthcare needs and financial situation before making a decision (Healthcare.gov, 2020).
3. Are health share plans cheaper than traditional insurance?
Health share plans often have lower monthly payments than traditional insurance, making them attractive to some individuals. However, they don't always provide the same level of coverage, particularly for pre-existing conditions or high-cost treatments (National Association of Insurance Commissioners, 2020). It's crucial to consider these differences when comparing the costs of HSPs and traditional insurance.
4. Do health share plans cover pre-existing conditions?
Many health share plans may limit or exclude coverage for pre-existing conditions, especially during the first few years of membership. This is one key difference between HSPs and traditional insurance, as the latter cannot deny coverage or charge more due to pre-existing conditions under the Affordable Care Act (American Health Insurance Plans, 2018).
5. Can I get tax benefits from a health share plan?
Currently, premiums paid for health share plans are not tax-deductible whereas premiums for traditional health insurance can be deducted as a medical expense if they exceed 7.5% of your adjusted gross income (Internal Revenue Service, 2020). This makes the tax implications of health share plans an important consideration when choosing between HSPs and traditional insurance.