Insurance, quasi-insurance and faith-based medical payment sharing: COM. V. REINHOLD d/b/a American Evangelistic Association; Medi-Share; Christian Care Ministry (COA 10/10/2008)

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.