The President released an Executive Order (EO) on June 24, 2019 and headlines were understandably focused on its call to improve the transparency of the cost of health care services. However, buried within the EO was a provision that would increase the incentives for consumers to sign up for Health Care Sharing Ministries (HCSMs) or Direct Primary Care Arrangements (DPCAs) as substitutes for traditional health insurance.
Specifically, the EO calls on the Department of Treasury to propose rules that would allow taxpayers to deduct qualified medical expenses related to “certain types of arrangements,” such as “direct primary care arrangements and healthcare sharing ministries” from their reportable income for tax purposes.
What’s the Medical Expense Deduction?
The IRS allows taxpayers to deduct qualified, unreimbursed medical expenses that exceed 10 percent of their adjusted gross income. Preventive services, physician and hospital services, mental health care, long-term care, prescription drugs, and eye and vision care can all count as qualified medical expenses. Taxpayers can also deduct the cost of transportation to and from medical care and health insurance premiums. While details are scant, the EO appears to encourage Treasury to expand the eligible expenses to include consumers’ payments to HCSMs and DPCAs.
What’s a Health Care Sharing Ministry?
We’ve written about HCSMs in this space before. Under federal law, HCSMs are non-profits with members who “share a common set of ethical religious beliefs and share medical expenses among members in accordance with those beliefs.” Members of HCSMs generally pay a monthly “share” based on their participation level and those shares are matched with another member’s eligible medical bills. HCSMs are largely unregulated by the federal government.
They are also not regulated by the states. In CHIR’s recent report for the Commonwealth Fund, we found that 30 states explicitly exempt HCSMs from insurance regulation. And even in the remaining 20 states and D.C., there is little, if any, oversight of these arrangements. This has led to concerns about fraud and deceptive marketing tactics associated with some HCSMs. HCSMs also do not have to cover a minimum set of essential benefits or the care for an enrollee’s preexisting condition. And there’s no guarantee that members will be reimbursed for services; the HCSMs we reviewed also place annual or lifetime caps on the amount an enrollee can be reimbursed.
What’s a Direct Primary Care Arrangement?
A DPCA generally involves a contract between a primary care provider and a patient, in which the provider agrees to deliver primary care services in exchange for a monthly fee. DPCAs are distinguishable from “concierge” practices, which tend to bill insurers in addition to charging a separate patient fee, and target a wealthier clientele. While the DPCA agreement has historically been limited to ambulatory primary and preventive care, some may offer a more comprehensive set of goods and services, such as prescription drugs or even surgical procedures. As these arrangements take on more medical risk, however, it increases the incentives for them to discourage enrollment among patients with high-cost or chronic health conditions. As with HCSMs, DPCAs are largely unregulated by state departments of insurance. Indeed, CHIR’s recent analysis for the Commonwealth Fund found that 24 states exempt DPCAs from their insurance laws (and several more acted to do so during the 2019 legislative session).
Although DPCAs are often marketed as a way to supplement traditional insurance, there is increasing evidence some people are buying into DPCAs as a substitute for insurance. However, they may not realize that these entities are largely unregulated, do not cover a comprehensive set of health benefits, and may have an incentive to discriminate against less healthy people.
Although section 6 of the Presidential Executive Order largely fell below the media radar screen, it will be worth watching whether future Treasury Department rules give greater legitimacy to DPCAs and HCSMs as potential alternatives to traditional health insurance. Allowing people to claim medical expense deductions for their monthly payments to these entities will likely increase enrollment. Many of the consumers signing up for these arrangements will not realize that the product they’re buying does not have to comply with the same standards and protections of traditional insurance, and their department of insurance won’t be able to help them if they are left with unpaid medical bills.