It’s no secret that, for years, health care costs have been on the rise, reflecting a massive burden for employers and employees alike.
According to the Kaiser Family Foundation, the average premium for employer-sponsored family coverage has increased approximately 54 percent since 2009. In 2019, the average annual premium for employer-sponsored health insurance was $7,188 for single coverage — a 4 percent increase over the prior year. For family coverage, the average premium rose 5 percent in 2019 to $20,576.
Now, in the wake of COVID-19, that cost could be exacerbated, as health plans look for ways to recoup the cost of mass testing and widespread treatment. For example, in New York, insurers originally sought a near-12 percent rate hike to health plans. The state government stepped in to quash that plan, instead opting for only a marginal hike, but that’s just for 2021. In 2022 and beyond, health care costs have the potential to soar.
Jennifer King is Vice President – Customer Experience Service and Quality and Enterprise Project Management Office (EPMO) at Boston Mutual Life Insurance Company.
King oversees Customer Experience Service (which includes Reconciliation, Control & Reporting and Policy Holder Administration), Quality, Change Management, Implementation, and the EPMO areas in the company's Customer Experience, Innovation, Projects and Technology Strategic Business Center. She is responsible for the teams that facilitate the policyholder customer journey, and supports the strategic alignment of the EPMO with the voice of the customers and the company's needs. As leader of the EPMO, Policy Holder Administration, and Quality Center teams, she aligns project and operations resources to optimize customer and employee experience. Ms. King also serves as the Business Sponsor for BML Forward, the new policy administration system in development at Boston Mutual Life.
Ms. King joined Boston Mutual Life in 2020 as Director – Strategic Project Management Office. She was appointed to lead the new Policyholder Administration and Quality Center teams in 2022 after being promoted to Vice President – EPMO in 2021, which were renamed under the banner of Customer Experience and Quality in early 2023.
Prior to joining Boston Mutual Life, Ms. King holds 20 years of experience in project and program management within the financial services industry. Previously, she served as Finance & Risk Infrastructure & Business Solutions (FRIBS) Program Manager, Corporate Finance Vice President at State Street Bank, and held several positions during her tenure at the company from when she joined in 2007. Prior to State Street Bank, she worked at Investors Bank and Trust, where she began her career in 1996.
Shai Gabay is CEO and co-founder of Trustmi.
Daniel Wheeler is president of The Fintech Lawyer, where he represents banks, fintechs and crypto startups.
So, if an even bigger health care premium crunch is coming, is there any way for taxpayers to find some relief? Potentially.
Last year, President Donald Trump issued Executive Order 13877, which directed the Internal Revenue Service on how to treat certain types of health plan arrangements. This year, the IRS responded by issuing proposed regulations. These new regulations included guidance for two alternate health care strategies — direct primary care, or DPC, arrangements and health care sharing ministries, or HCSMs. Under the proposed regulations, amounts paid for DPC arrangements and HCSMs are treated as deductible medical expenses. And that just may be the key to unlocking the respite many taxpayers desperately need.
What are DPC arrangements and HCSMs?
Before ditching traditional health insurance plans, taxpayers first need to understand how DPC arrangements and HCSMs work. Because these arrangements can take on a variety of forms, they will need to inquire about specific eligibility requirements and any limitations on the types of health services covered.
Under DPC arrangements, a patient contracts with their doctor for the provision of typical primary care services (e.g., preventative care, annual checkups, laboratory tests, etc.). Fees are usually fixed and paid on an annual or monthly basis (a typical monthly fee for a DPC arrangement is around $100), and in some cases doctors may charge an additional visit fee when services are performed. Obviously, this would be far more affordable than traditional health plans; however, many patients that pursue DPC arrangements also enroll in a high-deductible health plan to cover visits to specialists, urgent care or hospitals.
HCSMs are organizations whose members share medical expenses in accordance with a common set of ethical or religious beliefs, thus creating a cost-burden sharing system. According to the Alliance of Health Care Sharing Ministries, 1.5 million Americans are active members of an HCSM, and to date, the Department of Health and Human Services has certified 108 HCSMs.
That doesn’t mean it’s a slam dunk option for everyone, though. Proposed regulations lay out some detailed criteria that a group has to meet to gain HCSM status. For example, the organization has to have been in existence at all times since Dec. 31, 1999, and medical expenses of its members must have been shared continuously and without interruption since at least that date. It also must conduct an annual audit that’s performed by an independent CPA firm in accordance with GAAP, and have that audit made available to the public upon request. But if an organization can check all those boxes, it raises some intriguing options for some taxpayers that may be looking to save money during these uncertain times.
The grey area
While some of these options may seem enticing, they won’t be ideal for every taxpayer. For example, it appears that the IRS suspects its definition of a DPC arrangement may be limiting. Therefore, the agency is requesting comments on whether to expand the definition to include contracts with nurse practitioners, clinical nurse specialists or physician assistants who provide primary care services. Also, the IRS is requesting comments on whether other medical arrangements that don’t meet the definition of direct primary care (e.g., dental care or certain specialty services) should be included.
Meanwhile, the biggest disadvantage of HCSMs is inconsistent health coverage. HCSMs aren’t required to cover pre-existing conditions, cap out-of-pocket expenses or cover essential health benefits. They also can impose annual and lifetime benefit caps. In addition, because they’re based on common ethical or religious beliefs, HCSMs may require their members to abstain from certain activities. For some, this may seem too restrictive.
What’s more, if a taxpayer wants to take advantage of a health savings account, taking part in a DPC arrangement would limit, or in an HCSM’s case, outright preclude an employee from contributing to that HSA, which can offer substantial tax benefits.
The jury’s out
As health care costs continue to soar, some taxpayers will undoubtedly want to consider health care alternatives, but tax pros will have to weigh all the pros and cons before suggesting an alternative. Depending on the taxpayer’s circumstances, a DPC arrangement or an HCSM could either be a great fit or a square peg in a round hole. Preparers can help determine which category — if any — is right for their clients.
