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Kentucky Court of Appeals Says "This Insurance Isn't Really Insurance"


Blog Category:
12/17/2008
Hans G. Poppe
Comments (0)
My friend, Kevin Burke recently summarized the recent Kentucky Court of Appeals Opinion that ruled that a religious medical expense sharing plan isn't insurance and isn't subject to state insurance regulations.  I think this opinion sets a dangerous precedent and, more importantly, means that the people who have this plan have no legal safeguards in place if the plan refuses to pay their medical bills.

"What is insurance? This appeal attempts to answer that question in the context of a quasi-insurance medical payment program known as Medi-Share.

Medi-Share is a faith-based, medical payment sharing product sold by The American Evangelistic Association (AEA) and Christian Care Ministry (CCM). Medi-Share's Chairman and CEO is former insurance executive, John Reinhold. "Subscribers" complete a detailed application (including medical history) and agree to live by specific biblical and religious principles. If accepted, subscribers pay a monthly "donation" which is not tax-deductible as such per IRS regulations. According to Medi-Share's website (medi-share.org), a "donation" for a healthy married couple age 40-59 is $399 per month. Contributions are pooled, administrative costs (salaries, marketing, claims costs) deducted, and subscribers' medical expenses paid from the remainder. Claims adjusters review claims, negotiate payment to medical providers, and keep subscribers within the preferred provider network. Medi-Share asserts a right of subrogation and reimbursement for payments made. If a subscriber fails to pay the monthly donation, Medi-Share cancels the subscription or charges a late penalty. If a subscriber violates any condition of acceptance, Medi-Share terminates the subscription. Subscribers agree to arbitrate any disputes. Interestingly, Medi-Share explains in its terms and conditions that it is not insurance because it assumes no legal obligation to pay claims. Medi-Share's multi-million dollar marketing campaign touts Medi-Share as "biblical sharing" and the embodiment of Galatians 6:2: "Carry each other's burden, and in this way you will fulfill the law of Christ." 

The Commonwealth filed suit in Franklin Circuit Court seeking a declaration that Medi-Share is "insurance" subject to regulation under the Kentucky Insurance Code. After a bench trial, the court ruled in favor of Medi-Share. The Court of Appeals affirmed in a 2-1 opinion. Judge Rosenblum found that "insurance" is an arrangement for transferring and distributing risk. Because Medi-Share does not guarantee payment, it never transfers or distributes risk, and therefore is not regulated by the Kentucky Insurance Code. Judge Rosenblum noted in dicta that Medi-Share is also exempt from the Kentucky Insurance Code under KRS 304.1-270(1) even if classified as insurance. 

Judge Nickell concurred in part. He described Medi-Share as a "health care contrivance" which the Kentucky General Assembly should "rein in...before it runs wild, stampedes and tramples the rights and reasonable health care protection Kentuckians expect." However, Judge Nickoll agreed that Medi-Share is not insurance. He disagreed with Judge Rosenblum's dicta exempting Medi-Share under KRS 304.1-270(1). The statute requires a direct donation to a specified recipient. Because Medi-Share acts as an intermediary and takes out a hefty cut for administrative costs, it does not qualify for exemption. 

Judge Thompson dissented. He noted that other states consider Medi-Share to be a form of insurance, and expressed his fear that similar programs "will be sold in Kentucky and remain unregulated in an insurance industry susceptible to unscrupulous tactics." Medi-Share bears all the indicia of insurance yet deliberately evades regulation by using unique terminology. Although Medi-Share does not technically share "risk" like other insurers, its actions and advertisements induce people to participate based on the belief of a shared risk. Judge Thompson noted that Medi-Share is not exempt under KRS 304.1-270(7).

Note: An open question is whether Medi-Share violates the Kentucky Consumer Protection Act. Medi-Share markets itself as a reliable alternative to health insurance and represents that "all eligible needs have been met." It communicates its reciprocal obligation to subscriber's through Galations 6:2 which mandates "carrying each other's burden." Despite the biblical quotation, Medi-Share carries no actual burden (i.e. risk) to evade regulatory protection for its subscribers."  by Kevin Burke


Category: Unfair Insurance Practices Attorney


3 Comments to "Kentucky Court of Appeals Says "This Insurance Isn't Really Insurance""

To be clear, Medi-share is not an insurance program. Medi-share operates as a non-profit group and while members pay into a group fund each month, the money is never Medi-share’s money. Furthermore, Medi-share is not required to pay any bill, nor keep cash reserves on hand.http://www.newsonhealthcare.com/medi-share-its-not-insurance-its-a-caring-health-ministry/
Posted by kenlyn on January 15, 2012 at 02:03 PM
I saw some mistakes on my last posting and the following is a corrected version.

People who agree to participate in medical sharing programs like Medi-Share are informed that it is not an insurance policy they are buying and that there is no guarantee that a published or filed need will be met with support.

That is risky to begin with because a person who joins is basing their continued support and participation on a trust that this charity will reciprocate and be there for them when and if their need arises.

Such a type of ministry is also at risk of being taken advantage of as well. Such people who knowingly continue risky behavior cause who are members of a cost sharing organization to absorb the costs of that persons irresponsible behavior. Thus auto insurance for younger people is more expensive. A person who joins submitting an application that withholds information about a pre-existing condition is at risk of disqualification based upon their own deceitfulness. Likewise a person who joins a ministry is at the mercy of its member and issues characteristic to humanly operated business with imperfect decision-making.

Bottom line, a person who joins is at the mercy of the organizing and the people who evaluate all the needs, distribute the non-tax-deductible gifts, donation or whatever and act on all the information. They are definitely not for people who are dishonest, engage in high risk behavior, and who can’t stomach taking ownership of their own problems So, people who find this too risky should look into more traditional insurance which has it's serious problems as will. But at least there are laws that have to abide by.
Posted by Karl Mesenbrink on February 3, 2009 at 12:57 AM
People who agree to participate in medical sharing programs like Medi-Share are informed that it is not an insurance policy they are buying and that there is no guarantee that a need published or filed will be met with support. That is risky to begin with because a person who joins is basing their continued support and participation on a trust that this charity will reciprocate and be there for them when and if the need arises. A person who joins submitting an application that withholds information about a pre-existing condition is at risk of disqualification based upon their own discetfulness. Bottom line, a person who joins is at the mercy of the organizion and the people who evaluate all the needs, distribute the no-taxible gifts and act on all the information. So, people who find this too risky should look into more traditional insurance which has it's serious problems as will.
Posted by Karl Mesenbrink on February 3, 2009 at 12:27 AM

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