Schafer: Cost-sharing pools don't solve the real problem in health care

A short video entitled “How Does Sedera’s Medical Cost Sharing Work?” on the website of Sedera Health leaves at least one big question unanswered -- and that’s how it actually works.

Sedera is an example of cost-sharing, a still unusual but growing way to finance healthcare. It means other people are going to pay part of a member’s medical costs, that seemed clear from its video. And members “typically save 30 to 60 %” compared to other health care payment systems.

Beats me how.

A clearer explanation appeared in text elsewhere on the website for Texas-based Sedera. Sedera members apparently contribute a fixed amount every month to pay someone’s bills, then can get some or all of their own medical bills paid.

The thing is, an organization set up to have everybody pay into a pot of money to share equally in the risk of healthcare costs for the group’s members looks an awful lot like a traditional insurance company. Turns out, though, it’s only an uncanny resemblance. And consumers had better understand the difference.

Here’s one marketing claim of a cost-sharing firm called Knew Health: “It’s not insurance. It’s reassurance.”

That alone should make people at least a little nervous.

As this line suggests, though, the cost sharing operations may not do a good job of explaining what they are but at least a few of them deserve credit for clearly getting across what they are not.

“There is no pooling of funds as practiced by insurance groups,” is how Christian Care Ministry described its Medi-Share service. “Christian Care Ministry and the Medi-Share program are not registered or licensed by any insurance entity, nor are we required to be. We do not collect premiums, make promise of payment, or guarantee that your medical bills will be paid. Sharing of medical bills is completely voluntary.”

Just to be clear about this, nobody at big Minnesota health plan companies like Medica or HealthPartners think claims for the people they’ve taken on as members are obligations they have the option of not paying.

These cost-sharing groups aren’t exactly new but have lately gotten more prominent thanks in part to their marketing during this season of open enrollment for healthcare plans.

The appeal of a way to pay for healthcare that seems to cost a lot less money than an insurance plan is obvious. There was news this fall that the average annual cost of a family insurance plan in the U.S. finally broke $20,000, although many Americans get their employer to pick up a big chunk of the cost.

Many cost-sharing programs seem to be organized around a segment of the population that might be considered a community already, such as Florida-based Christian Care Ministry.

This nonprofit’s cost-sharing program, called Medi-Share, draws its inspiration from the big commune lifestyle of the early Christian church as described in the Bible.

It’s about picking up a share of the burdens of others. That happens to be one reason members can’t expect to be repaid for preventive healthcare services. Those are planned, and even if expensive they can’t be considered a burden.

Some good theological questions come to mind that apparently don’t pop up enough to be listed in the frequently asked questions, like why there’s no ethical obligation to pick up part of the health cost burden of a neighbor literally next door rather than a Medi-Share member in another town.

Medi-Share’s FAQs section did point out that drug addiction is an “unbiblical lifestyle” that no member will ever have to financially support, a cruel way to talk about people with such a heartbreaking condition.

Medi-Share generally stays away from insurance terms. Members aren’t charged a premium, instead contributing a monthly share. Medical procedures and other care aren’t “covered.” There aren’t any claims to process. Instead there’s a member’s bill that’s paid for by others.

Knew Health, a similar program that seems to be pitched at the young and fit, happily points out all the ways its approach is better than health insurance, while still highlighting the critical difference: There is no transfer of risk from the member to the company, a pool or anyone else.

The acceptance of risk pretty much defines an insurance company, although they can’t underwrite potential policyholders the way they once did and exclude people they judge high risk.

Insurance is one of the oldest regulated industries we have, and one of the things that regulators are on the lookout for are companies that might tip over some night, sticking their policyholders with big unpaid claims. The fix for that is financial capital, to form a big cushion that keeps the company in business through a period of unexpected losses.

On the other hand, if somebody puts a bunch of capital at risk in the insurance business, they have to earn a good return on that capital or they will put it somewhere else. So the capital is far from free.

You don’t want to have to pay for a portion of keeping a capital cushion? Fine. Go with cost-sharing and accept the risk.

Cost-sharing isn’t the only approach to finding a cheaper way to cover health care costs. Something called short-term health insurance has surged, a kind of insurance product that was once only meant as a 3-month bridge into a regular insurance plan. Rule changes at the Federal level effectively changed that to three years.

Minnesota law is more restrictive, but putting short-term health plans and Minnesota into the search box of Google turned up a site the promised insurance that would “protect arms and legs, not cost them.”

Be aware, though, that short-term health insurance products are cheaper for a reason. A better textbook case of “getting what you pay for” doesn’t come to mind.

In a way the prevalence of this kind of pseudo-insurance approach to healthcare spending, never mind the risks, isn’t really a problem so much as a symptom of a one much bigger one.

It’s not a health insurance problem at all. It’s that healthcare is far too expensive.

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