A Solution to the High Cost of US Health Insurance

A Solution to the High Cost of US Health Insurance

I’m an employer and have been providing health insurance for my employees since I started my company in 1996. The cost of providing that insurance has increased by 8% to 15% every year except one. That year I asked my insurance agent why the rate didn’t increase and he said, “I don’t know and I’m not going to ask.” Needless to say, health insurance rates in the US have increased at a rate far greater than inflation. As an employer, I have dealt with it by switching carriers, increasing deductibles and just accepting that the cost of running my business would increase.

The Problem

I haven’t covered my wife and children through my company health plan in many years because it’s just ridiculously expensive. They are all quite healthy so I have had them on high deductible ($6500 per year each) health insurance plans. Earlier this year Humana (the company from which I purchased coverage for my kids) notified me that they were not going to renew our plan and that I should go to the Healthcare Marketplace to find a new one. As it turned out, they were exiting the market entirely (at least where we live) so buying from them would no longer be an option. I went to the Affordable Care Act Healthcare Marketplace website to find that to get a plan with a $6500 per year deductible, I had but one choice: an HMO plan from Blue Cross/Blue Shield at rate 40% higher than what we had been paying. This was bad all the way around. It’s an HMO so my kids would not be able to continue to see their existing doctor. Only one company offering plans means there’s no competition to drive efficiency. And of course a 40% increase for a plan that is arguably worse, is just insult to injury. My wife’s insurance situation wasn’t considerably better.

I started adding things up. If I accepted the Blue Cross/Blue Shield plan for my kids, when  factoring in the cost of my wife’s insurance and mine, we would be paying $1410 per month for our health insurance. What am I getting for that? Well, let’s look at my out of pocket maximums. At $6500 for each of my children and my wife plus $4000 for me, that’s $23,500 per year in potential exposure. In other words, if we all had something terrible happen that caused us each to hit our out of pocket maximums (very unlikely I will admit but it’s the risk nonetheless), we would end up paying out $23,500 in any given year in addition to $16,920 per year in premiums. The purpose of insurance is to avoid situations like this. When your risk is that high, what you have is only insurance by the strictest definition of the word. I figured there had to be another solution.

I’ve heard Senator Bernie Sanders (and others) talk about Medicare for All or Universal Healthcare. That’s not ideal because it allows the government to essentially dictate pricing and that’s not the free market that I think drives efficiency. However, even if I was a fan, Congress is so hopelessly divided that the odds of such a bill passing are nearly zero. I continued looking for solutions and I was quite surprised to have found one. However, before we get to that, why are health insurance costs getting out of control? The reason is that insurance companies are for-profit enterprises and thus the bigger spread between what they charge and what they pay out in claims, the more money they make. This puts their interests in direct conflict with yours and mine. Don’t get me wrong. I run a for-profit company. I’m all for free enterprise. However, medical care is a bit different. When your health is at stake, you’re not in a position to bargain. It’s like being mugged in a dark alley. The thief is pointing a gun at your head and telling you to hand over all your money. Are you really going to ask, “How about just $20?”

The Solution

As it turns out, affordable health coverage is actually available through something called a Health Share Plan. Health Share Plans are run by non-profit organizations called healthcare sharing ministries. They charge  the equivalent of a monthly premium and they have a yearly deductible though they don’t use these terms because technically, they are not insurance. They provide much of the same function as traditional for-profit insurance companies but by the letter of the law, they are not providing insurance. The one I chose comes from an organization called Liberty Health Share. The idea is that you pay into a pool and from that pool, eligible medical expenses incurred by members are paid. Your monthly payment is called your Monthly Shared Amount. It’s the amount you are essentially sharing with other members who need it. You are also responsible for paying a certain amount of your own medical expenses. This equivalent of an annual deductible is called your Annual Unshared Amount. It’s the amount you pay that isn’t shared by other members.

Coverage through Liberty Health Share pays for each members annual physical/well-check as well as preventative measures such as vaccinations. You are responsible for paying your Annual Unshared Amount and after that (depending on the plan you choose), Liberty pays for the rest. I cover my family on the most expensive plan Liberty offers (that also provides the greatest benefit) which provides up to $1 million per incident in coverage. An incident is everything connected with a particular healthcare event. For example, you fall inside your home, breaking your leg. There’s no one home so you call for an ambulance that then takes you to the hospital. You require an operation so you’re in the hospital for a few days. Over the next month or two you have a few follow up appointments before your cast comes off and you’re right as rain again. All of that would be considered a single incident. A million in coverage will take care of just about anything you can imagine including a heart transplant.

Over the past two decades, I’ve found information on coverage from commercial insurance companies to be confusing at best. Liberty on the other hand, provides a simple and clear document called their Sharing Guidelines that explains exactly what is covered and what is not. It explains what requires pre-approval and what does not. The reason for pre-approval is mostly to give Liberty the opportunity to make sure that the procedure really is necessary. You’d be amazed at how many doctors admit they conduct unnecessary tests and procedures to cover themselves for liability reasons. The entire document is 30 pages. You can read it in a half an hour or less.

Commercial insurance plans are typically either an HMO or a PPO. In the case of an HMO, the healthcare company has doctors as employees and you are limited to choose amongst those. A PPO is similar except the doctors are not employees connected with the insurance company but must be part of the insurance companies’ network. If you have doctor you like and trust, you will only be able to realistically see them if they are a member of your insurance companies’ network. Not so with Liberty as they have no network. You can see any doctor you like. You can go to any health care facility you like. You can even go overseas for health care as long as the cost is not greater than it would be here in the US and the invoice is provided in English. You’re also automatically covered by them no matter where you go in the world. That is not typically the case with commercial medical insurance policies.

Liberty provides you with a card that is quite similar to the ones provided with commercial insurance plans and you use it the same way. We have only been to the doctor a few times since signing up with Liberty but each doctor knew who Liberty was and was quite happy to bill them directly. Liberty will then negotiate with the provider to reduce the bill as much as possible, typically 35% to 65% according to Liberty. I’ve been told that health care providers in general like working with Liberty because they know how much they will be paid up front and are typically paid within 30 days, a time frame unheard of with commercial insurance carriers. What if your doctor won’t bill Liberty? In that case you pay cash and submit the bill to Liberty through their web portal for reimbursement. I’m told that having to do this is the rare exception.

If Liberty concludes that a medical expense you have incurred doesn’t meet their guidelines, they will tell you so but they make a point to also tell you that you should call them to discuss it. They claim that most situations can be cleared up with a phone call. If the phone call isn’t enough they have two other levels you can go through in an attempt to work things out with them and they openly encourage this. In researching Liberty I did find a handful of people complaining (via the Better Business Bureau) about bills that were not paid. However, in every case the member either clearly did not understand how Liberty works or Liberty had already responded to the complaint, explained what the issue was and was reaching out to the member to resolve it.

Cost

Liberty’s pricing is very straight-forward and simple. They have pricing for individuals, couples and families. As a reminder, I would have been paying $1410 per month for a $6500 deductible plan for my wife and children and a $4000 deductible plan for myself through my work. That’s $23,500 per year in risk exposure. My risk exposure with Liberty is only my Annual Unshared Amount which for my entire family is $1500. That’s it. There’s some additional risk as well which I’ll get to in a bit. Instead of $1410 per month, the cost to cover my entire family for Liberty’s most expensive plan is $449. That’s a savings of $961 per month or $11,532 per year for a plan that reduces my risk exposure by $22,000 per year. When I say I found this to be as unbelievable as you may find it now, I’m not kidding. I don’t think I completely believed it myself until a friend of mine who has spent his entire life in the insurance business reviewed their sharing guidelines then called them and asked a lot of questions then became convinced himself to switch.

Their pricing is very affordable. For example, for a single person under 30 on their most expensive plan (Liberty Complete), the monthly cost is only $149 and the Annual Unshared Amount is only $500. For someone working full-time for minimum wage, nothing is really affordable but $149 per month can be managed and they have other plans for as little as $107 per month. For a couple under 30, the price is only $249 and for a family, $399 no matter how many children you have. If there’s only one parent on the plan, they give you a $50 per month single parent discount. When you reach 30, prices got up $50 across the board. At 65, they go up again $25 for a single person and $50 for couples and families. Like I said, their pricing is very reasonable.

You’re probably wondering how soon it will be before they raise prices. I wondered that as well. It turns out that they have never raised prices though according to the Liberty rep I spoke to, they did lower them once. When you’ve stopped laughing, read on. I asked them what would have to happen for them to raise prices? The rep said that they have a certain percentage of buffer they require between what they take in and what they pay out. If they ever have less than that percentage, the Board of Directors meets to decide if rates need to be raised temporarily or permanently. So far, they have only lowered rates, not raised them.

Liberty has 140,000 members across the country. Their membership has doubled over the last two years. It looks like they pay out about $12 million a month in claims. Based upon their rates, I don’t see them needing to raise their rates anytime soon. Members receive a monthly newsletter that spells this all out.

Never Heard of Them?

You’re probably wondering why you have never heard of them. I had never heard of Liberty or health share plans prior to about 6 months ago. That’s because they are a nonprofit organization that spends very little on marketing instead choosing to rely upon word-of-mouth so they can presumably keep rates as low as possible. However, Liberty has been providing this service since 1990 and formally as Liberty Health Share since 2012. There are several health share plan organizations that have been in business as long as Liberty. I chose Liberty because of all of them, they are the most transparent in my humble opinion.

What about the Affordable Care Act?

Health Share Plans are specifically exempt from the Affordable Care Act. That means if you are covered by one, you are considered to be insured in the eyes of the IRS. You just have to include a special, one page IRS form with your tax return to avoid the penalty.

Nothing’s Perfect

Like me I’m sure you’re wondering, what’s the catch? Well, nothing is perfect and Liberty is no exception. First, their prescription drug plan is not great. You can probably get as good or better a deal on prescription drugs at Costco or your local grocery store pharmacy. I’ve done some research and found that a lot of prescription drugs have generics that are quite reasonably priced. What about something expensive? For example, if you were diagnosed with Hepatitis C, the drugs would set you back something like $4000. That’s a lot to be sure. However, you have to look at how much you are saving per year with Liberty. In my case, I save almost 3 times that every year in premiums alone. It’s just important to understand that there is no maximum out-of-pocket limit for prescription drugs. So if you’re HIV-positive for example, it’s not going to work for you.

Liberty, like all the other health share plan providers, started inside a church. They are Christian organizations that believe people should help each other in their time of need. I can’t speak for the other providers, but despite Liberty’s Christian origins, they will sell coverage to anyone regardless of faith, age, gender, race, marital status or sexual orientation. Having said that they do not recognize same sex couples as married and thus require them to buy individual plans rather than a couple’s plan. That means they will be collectively spending $50 per month more but on the other hand, they will have each have an Annual Unshared Amount of only $500 compared to $1000 for a couple. I personally would prefer them to be secular as what they provide is not religious in any way but regardless, they started as a Christian organization. That they will provide coverage to anyone regardless of faith works for me. They don’t require you to go to church for example nor evangelize at all really but they do expect you to be the kind of person that generally takes care of yourself. They do not cover the cost of an abortion unless the life of the mother is at risk. I’m guessing that if your commercial insurance covers the cost of an abortion, it’s simply because that’s less than what it would cost them to pay for a delivery. Read through their sharing guidelines. I find them to be quite reasonable.

If you aren’t taking decent care of yourself physically, they will assign you a health coach who will meet with you by phone once a month to help you get back on track.  For example, if you’re overweight (according to their very reasonable guidelines), you’ll need to lose weight. They charge $80 per month for the health coach. Once you reach your agreed upon goal, the $80 per month charge ends. You can drink but you can’t abuse alcohol. If you need a liver transplant because you have abused alcohol your entire life, I would not count on them to cover that. You cannot smoke. If you’re a smoker, you must agree to quit smoking within 3 months. It goes without saying that you can’t abuse drugs either.

When you sign up, nothing but accidents, acute illness or injury are covered for the first 60 days. After that, pre-existing conditions are not covered for the first 12 months. They are covered up to $50,000 for the next 12 months and after that they are not considered pre-existing anymore.

All of this is my understanding of how Liberty works. Before signing up you should throughly research their offerings yourself.

A Better Solution

Health Share plans are not perfect but for the overwhelming majority of people, they provide a far more affordable alternative than just about any commercial health insurance. If they were scaled up even larger, for example if they have several million members, the economies of scale would likely provide even greater value. In my humble opinion, Health Share plans are a better solution than the commercial insurance provided through the Healthcare Marketplace or even through most employer-based programs, at least for dependent coverage. The US Government could still provide income-based assistance to help offset the monthly cost for the poorest among us for a fraction of what the cost of the Affordable Care Act today. For those for whom a Health Share Plan would not make financial sense (such as those who are HIV-positive), early eligibility for Medicare should be provided. However, if 10’s of millions of Americans were covered by nonprofit Health Share Plans, it’s certainly possible that even those with expensive, chronic conditions could be covered.

I’m currently exploring ways to scale up Health Share Plans so that more Americans can be covered by them and they can be even more efficient. However, you don’t have to wait for that to happen in order to save money. You can do your own research and choose to sign up with one like Liberty today.

Advertisements