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.
Jessica Tuman is vice president of the Voya Cares Center of Excellence at Voya Financial. Voya Cares provides training and resources to help its staff and external stakeholders understand, employ and better serve those with special needs and disabilities and their caregivers to achieve the quality of life they seek today and through retirement. Learn more at voyacares.com. And, check out one of Voya’s recent ad campaigns, titled Growing Up, which features a family with special needs in three periods during the course of a lifetime.
Leslie C. Egiziano, MBA, SHRM-SCP, SPHR, is a human resources consultant at Paychex HR Services. She has over 15 years of experience working with Paychex clients in HR Solutions. She came to the company with a diverse work history which helps her connect with a variety of clients. She’s done everything from sales and marketing to establishing an HR department and hiring over 400 staff in a year and a half for a tech startup company — all while continuing her education and certification programs.
Mitch Ocampo is Managing Director and Head of Innovation for RGAX Americas. As the transformation engine of Reinsurance Group of America, Incorporated (RGA) he is focused both on the innovation strategy of RGAX Americas and expanding its capabilities in emerging solutions to better serve clients and solve large-scale industry challenges.
An experienced technology executive, Mitch’s work over the past two decades has taken him to the cutting edge of reinsurance and financial services innovation technology. Since 2015, his primary focus has been insurtech: starting in 2015, he was Chief Technology Officer for reinsurance technology specialist TAI (Tindall Associates), and then, after TAI’s acquisition by LOGiQ3, was Group Chief Technology Officer for LOGiQ3’s companies, which include TAI, APEXA, and Cookhouse Lab. LOGiQ3 was acquired by RGAX in 2017.
Previously, Mitch spent four years as Managing Director, Strategic Industries, Americas, for msg global solutions, a global strategic consulting and intelligent IT solutions specialist. Before then, he was Partner and Managing Director of Kogent Corporation, which builds custom business intelligence, data warehousing and analytics solutions for clients. He has also worked in data solutions and software development/engineering roles for a variety of companies including IBM, EMC, and Thomson Reuters.
Mitch’s Bachelor of Arts (B.A.) is from the University of New Hampshire in Durham, N.H. (U.S.), and holds a dual-degree joint M.B.A. in international business from Brown University, Providence, R.I. (U.S.) and IE Business School, Madrid, Spain.
An active member of the global innovation community, he serves on the advisory board of numerous startups and is a mentor, coach, and advisor to Brown University’s B-Lab accelerator, supporting entrepreneurs developing high impact ventures.
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.
