Health Sharing Plans — Lower Cost, Higher Risk?

While the price of gas may be in the news, it's the cost of health insurance and out-of-pocket expenses that are at the forefront of many people's minds. Two-thirds of people are concerned about the affordability of health insurance and medical expenses, outpacing groceries, food and gas, according to a study released by the Kaiser Family Foundation earlier this year. This comes at a time when subsidies for ACA health insurance plans have been reduced, meaning some families are paying the full cost of coverage. For a family of four in Colorado, this can easily exceed $2,300 a month with a high-deductible plan.

With costs like these, it's not surprising that many are reluctantly choosing to cancel their health insurance coverage. As premiums skyrocket, analysts report that the number of Americans covered under the ACA could drop by $5 million this year — a 20% decline that is pushing many to seek alternatives. Concerned about paying for unexpected medical costs, many Coloradans are joining health sharing plans.

Healthcare sharing arrangements (HCSAs) function differently than traditional insurance. Members contribute monthly to the plan. When members incur medical expenses, they pay them out of pocket. Members often tell their healthcare providers they are uninsured and ask for a cash discount. Once the member has paid for the expense, they submit it for reimbursement to the health sharing plan. The plan then decides, according to its terms, whether the expense is eligible for reimbursement and whether a deductible (often called unshared amount or another term) applies. As HCSAs are quick to point out, these plans are not health insurance policies.

It's understandable why people are flocking to these plans. Primarily, it's the cost. Depending on the provider, a health sharing plan may cost $500 a month for a family. People may reason that they are relatively healthy and likely won't need the plan. They also may be willing to take the risk that any potentially expensive healthcare expense would be reimbursed by an HCSA. So what do you give up when you opt for such a plan? While there are many health sharing organizations, in general there is limited coverage of treatments related to preexisting conditions, which can be broader than you might expect. According to a Colorado report on health sharing plans for 2025, this can include asthma, autism, dementia, hypertension, diabetes and cancer. While not every plan will exclude treatment related to those conditions, it is a caveat that potential participants should research.

Another consideration is your right to appeal if you don't agree with a denial of reimbursement. In general, most HCSAs are not regulated by the state Division of Insurance, as health insurance companies are. The state cannot intervene on your behalf if you believe an HCSA should reimburse you, but its decision-making board disagrees.

There are also tax reasons to consider traditional health insurance over HCSAs if you're self-employed. The federal tax code generally permits you to deduct the cost of health insurance premiums. Under current law, HCSA payments are not deductible as self-employed health insurance.

With most HCSAs, you must pay upfront for health services and then wait for reimbursement. That creates an additional cash-flow strain when compared with insurance-covered care, where payment is often due only after the insurer has paid its portion and negotiated provider discounts. In addition, many HCSAs have a faith-based mission, which means you may need to subscribe to certain religious beliefs, and some medical treatments may not be reimbursed because it conflicts with those beliefs. Believe me, in a family with two self-employed adults, I understand the allure of HCSAs. The reduction in monthly costs is enough to make you take notice. As with many things in life, you generally don't get something for nothing. With the lower cost comes giving up predictability, consumer protections and coverage certainty. Before you decide to sign up for an HCSA, do a deep dive to understand the limits of its coverage. Before you focus on how much you would save each month, understand what risks you're agreeing to accept.

For more information on HCSAs, see the detailed report on Health Care Sharing Plans or Arrangements on the Colorado Division of Insurance website. The report includes details on different providers, including religious requirements, coverage and preexisting condition exclusions.

David Gardner is a certified financial planner in Boulder County and is admitted to practice before the IRS. He can be reached at entreewealth.com. As financial planning is only possible after knowing the client, the column is not intended to be personal financial or tax advice. Data presented is believed to be accurate at the time of writing.