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The IRS issued a proposed rule in June 2020 that would allow deductibility under section 213 of the Tax Code for Medical Cost Sharing. Unfortunately, the proposed rule retained the anti-competitive and arbitrary limitations on Medical Cost Sharing imposed by the ACA. 

Sedera has advocated for removal of the problematic provision throughout the rule-making process. We are grateful that many of our members, affiliates and business partners have joined our effort. 

Today, Sedera’s CEO Jamie Lagarde testified at the public hearing on this proposed rule. We’ve provided his testimony in full below:

Introduction

My name is Jamie Lagarde, and I am CEO of Sedera.  Sedera offers a technology platform to facilitate medical cost sharing, in a transparent, secure, and innovative fashion. I am testifying today to urge the Treasury Department and IRS to remove paragraph (4) of the proposed regulation’s definition of “health care sharing ministry,” which would limit the rule’s recognition of HCSMs to only those that have “been in existence and sharing medical expenses since at least December 31, 1999.” 

Including this “1999” restriction in the final regulation will undermine the very purpose of the rule and will harm American healthcare consumers instead of protecting them.

I also urge the Treasury Department and IRS to consider changing the term “health care sharing ministry” to “medical cost sharing organization” when finalizing the regulation.  The phrase, “medical cost sharing organization better reflects the diverse nature of these entities, like the Sedera Medical Cost Sharing  Community, which serves a community united by ethical beliefs. 

The Problem 

We know our healthcare system is broken and overly complex.  The price of care has risen dramatically and is often unknown to patients, there’s a severe lack of options for consumers – particularly those who do not receive health care directly from their employer,  and doctors are busy with paperwork and administrative burdens instead of being able to focus on spending time with patients.

Our healthcare system has moved away from what really matters: quality, personalized, and affordable care. And as was previously mentioned, employers and families need fixed, predictable costs and we believe that membership-based care models like Medical Cost Sharing and DPCs provide just that.

Membership-based care models like Sedera give employers and families another healthcare option, empowering and educating healthcare consumers to take control of their health and well being, encouraging price transparency, emphasizing the doctor-patient relationship, and freeing individuals from an employer-based healthcare model. 

Alongside medical cost sharing, direct primary care is becoming a more and more popular method for families to get high-quality primary care at a reasonable price, while allowing for more face time between doctor and patient, and removing administrative burden. Our health care problem does not have a one-size-fits-all solution.  One option that may work for one family may not work or be attractive for another.  At the end of the day the more options and more market competition there is,  the better it will be for consumers and the healthcare system as a whole.

In his Executive Order directing the IRS to enact this rule, President Trump recognized this important fact by proclaiming that the only way to improve our healthcare system is to enhance the ability of patients to choose the healthcare that is best for them and empower patients to become more engaged in their healthcare decision making.

 

The Sedera Story

Sedera is playing an important role in transforming the American healthcare system. Sedera was inspired by the long history of traditional HCSMs that focused on serving a specific denomination. Unlike these ministries, we were formed as a community of individuals bound by ethical principles focused on a commitment to caring for each other and bearing each other’s medical burdens.

Since Sedera was founded, Community members have shared millions of dollars in medical expenses with each other and have the freedom to see the providers of their choice.  And Sedera takes pride in an innovative and technology-focused approach to health care sharing that empowers our community to be active and savvy participants in their healthcare and help transform our healthcare system.

To that end… we invested serious time and resources into building a fintech-enabled direct member-to-member sharing platform that increases transparency, security, and accountability.  

Our commitment to transparency and accountability is also demonstrated through the efforts we take to ensure that our members understand how sharing works and how it differs from insurance.  We do not have networks, issue ID cards, indemnify community-members, pool funds, have premiums or deductibles.  We don’t require the pre-authorization of medical procedures or engage in claims adjudication.

Sedera plays an important role in the medical cost sharing ecosystem, as insurance doesn’t work for everyone and the legacy HCSMs are not a good fit for large parts of the population. We’re also helping advance a free-market health care system by encouraging price transparency and empowering our members to take control over their healthcare decision making.

The 1999 Provision Does Not Protect Consumers

While the concept of health care cost sharing is not new – Sedera is relatively new – we were founded in 2014. Even though we were created in the last ten years, Sedera meets the statutory definition of an HCSM in many of the states that define HCSMs. Sedera also meets the proposed regulation’s HCSM definition but for the provision that requires an HCSM to have been created before and continually sharing medical expenses since at least December 31, 1999.

Some may argue that this “1999 restriction” protects consumers from bad actors — that’s not the case.  Unlike the other elements of the definition, the 1999 requirement is not an operational requirement to protect consumers or increase transparency and it has not and will not keep “bad” actors out of the market.  There are reputable HCSMs that were created both before and after 1999. And there are also HCSMs that claim to satisfy the pre-1999 restriction that have been accused of not meeting their commitments to their members or have run afoul of regulators.

The date a community was formed does not tell you anything about its commitment to its members or the integrity of its leadership. The 1999 restriction is especially meaningless as any arbiter of quality, as there is a widely adopted workaround that many HCSMs have taken advantage of to meet the 1999 requirement.  

Many of HCSMs that claim to meet the 1999 requirement were created within the last 20 years but have acquired or merged with obscure or near-dormant HCSMs that were actually formed before 1999.  In fact, four of the seven major HCSMs that claim to meet the 1999 requirement were formed after 1999 but have taken advantage of this loophole. This also includes the recent announcement that an HCSM that has run afoul of a number of regulators is now claiming pre-1999 status due to its alleged partnership with an HCSM that meets the requirement.

If the IRS is truly interested in protecting consumers, we recommend that it consider adopting additional operational requirements like direct member-to-member sharing and additional transparency requirements. [NOTE: more on this can be read here.]

 

The 1999 Provision Stifles Innovation

Instead of keeping out bad actors, the 1999 requirement will primarily serve as a constraint on competition and innovation and undermine the very purpose of the proposed regulation. By including the 1999 provision, the regulation will stymie HCSMs serving new communities from forming and will leave many healthcare consumers without any health care sharing options, as all of the HCSMs that claim pre-1999 status limit their memberships to individuals who follow the tenets of a handful of Christian denominations.  

This is an ironic result, especially as the proposed rule intends to increase the attraction of HCSMs to a broad range of Americans through their integration with Health Reimbursement Accounts. 

In addition to constraining choices and undermining the purpose of the rule, the 1999 restriction arbitrarily puts a thumb on the scale for certain HCSMs and discriminates against newer HCSMs that serve a broader and diverse population without any policy justification. 

Including the 1999 requirement in the proposed rule will also continue to artificially distort the HCSM ecosystem and incentivize economically irrational behavior (the merger of newer HCSMS with those that meet the 1999 requirement), while doing nothing to prevent bad actors from operating in the space or otherwise protecting consumers. 

Conclusion

Removing the 1999 provision from the definition will have zero impact on existing ministries that claim to meet the definition today.

Its removal will advance the purpose of the rule by increasing options for consumers, expanding the population of individuals who may join an HCSM, promoting competition and innovation in the sharing ecosystem, and spurring growth in this important sector by permitting other innovative and new organizations to form and be recognized as HCSMs.

As I mentioned earlier, I also urge that you consider changing the term “health care sharing ministry” to “medical cost sharing organization” to better reflect the diverse array of sharing organizations that serve religious and ethical communities. 

I want to thank the Treasury Department for their time and attention to this important matter.