Back in 2020, I wrote a post Do Not Buy List: Healthcare Sharing Ministry As Health Insurance Alternative. Although they may present a lower-cost option that even aligns with your faith, they can also contain hidden and unpredictable risks. Since then, membership has grown but many have also found themselves stuck with large and unexpected unpaid bills.

Sharity Ministries, also formerly known as Trinity HealthShare, went into bankruptcy in 2021 and left their 40,000+ members with over $300 million in unpaid healthcare claims. A 2022 lawsuit by the State of California alleged that Sharity Ministries paid out as little as 16 cents of every dollar it took in.

Medical Cost Sharing Inc. of Missouri was shut down by the FBI and Dept. of Justice in early 2023 after allegedly taking in millions in premiums but only paying out an estimated 3.5% of premiums collected.

Liberty Health Share, which has over 220,000 members, has been involved in multi-million dollar settlements with its vendors (which records show were owned by relatives or prior business partners of the CEOs) and is the subject of a new investigative article by Propublica: A Christian Health Nonprofit Saddled Thousands With Debt as It Built a Family Empire Including a Pot Farm, a Bank and an Airline.

The failure of federal and state agencies to move decisively against the Beers family has left Liberty HealthShare members struggling with millions of dollars in medical debt. Many have joined a class-action lawsuit accusing the nonprofit of fraud.

One of the main issues is that they purposefully operate in a gray area where they make all the rules. Anyone can claim to pay 100% of “eligible” expenses, as long as they get to define “eligible”. The “non-profit” executives can also pay other businesses affiliated with themselves, which in turn do make plenty of profit.

Despite abundant evidence of fraud, much of it detailed in court records and law enforcement files obtained by ProPublica, members of the Beers family have flourished in the health care industry and have never been prevented from running a nonprofit. Instead, the family’s long and lucrative history illustrates how health care sharing ministries thrive in a regulatory no man’s land where state insurance commissioners are barred from investigating, federal agencies turn a blind eye and law enforcement settles for paltry civil settlements.

With minimal regulatory oversight, things can go bad without anyone noticing:

There is no national data showing how much health care sharing ministries spend on members’ medical bills. However, as scrutiny of sharing ministries increased in recent years, some states have begun to require financial disclosure. Data published by the Massachusetts’ insurance board shows that Liberty spent about 56 cents of every dollar it took in from members in that state on medical expenses in 2019 and 2020, a figure that would be scandalous if it were an insurance company. The federal government requires insurance companies to spend at least 80 cents of every dollar on direct care.

While they may claim to be non-profit charities, these entities are all businesses in the end. They must balance revenue and expenses, deal with the overall economy, deal with internal and external fraud. The numbers have to add up, while low premiums conflict with generous claims payouts. Charities fail. Businesses fail. Can you predict which one?

Given that a single medical diagnosis could add up to $100,000 or $200,000 or more in total bills, the failure of a health care sharing ministry could basically mean the bankruptcy of most families. Even worse, they may place a household in the position to avoid or skip important treatment. The entire reason we have car, home, and life insurance is to prevent financial disaster from a single incident.

Things can go well for a long time. Bernie Madoff’s clients were quite happy with his services… until they weren’t. Warren Buffett summarizes with this quote:

Over the years, a number of very smart people have learned the hard way that a long string of impressive numbers multiplied by a single zero always equals zero.

I share the stories above that have occurred just over the past few years, and while I’m hopeful that there will be no future examples, I’m also realistic that the list will likely continue to grow. Be careful out there. It’s not worth risking a zero for me.

Financial noise is everywhere. I try to be selective and only write about a limited amount of unique, profitable, and actionable information. If I see a bad product, I usually just ignore it and move on. Angry rants are not my thing.

However, I do worry that if something happens to me, my surviving loved ones may not know what to avoid. Therefore, I am adding a DO NOT BUY list as part of my estate planning documents. Simply avoiding the worst things is often a better (and easier) strategy than searching for the absolute best thing.

This WSJ article (paywall?) profiles one of the items on my DNB list: It’s the Hottest Thing in Life Insurance. Are Buyers Aware of the Risks?. I was unaware that indexed universal life (IUL) had grown so much in popularity, now making up 25% of new individual life insurance policies as measured by premium:

A universal life insurance policy combines a death benefit with the ability to build up a policy cash value. An indexed universal life policy is a universal life policy that increases the cash value at a rate tied to the performance of an index, often the S&P 500.

Briefly, here are reasons why I avoid Indexed Universal life insurance products:

• High fees. In fact, probably multiple layers of fees. They might sound simple, but are actually amazingly complex. Per the WSJ – “We joke that it takes an actuary, an attorney and sometimes an engineer to understand the calculations,” said Billie Resnick, co-author of an American Bar Association book on life insurance.
• No guaranteed return. You are unlikely to get near the long-term S&P 500 returns. Most IULs have floors which protect you from losses in down years, but return caps which cuts off your return on big up years. Stock market returns are lumpy, but with more big up years than big down years. Historically, protecting against the downside does not help enough to offset missing out on the upside. In addition, they almost always exclude dividends, which means you are guaranteed to miss a significant part of total return. So even if you did magically track the S&P 500 perfectly, you’d still be behind by ~2% due to losing the dividend. You’ll get a smoother ride, but at what cost?
• Life insurance is better when it is simple and transparent. Ideally, the payout should be a guaranteed amount in exchange (i.e. $1 million cash) for a clearly defined event (i.e. death). When something is simple and transparent, you can easily comparison shop and let market competition create a fair price. IUL policies are again highly complex and nearly impossible to compare side-by-side. Maybe one day this will change, but for now it’s buyer beware.
• More fine print: Insurers can change the rules after purchase?! Per the WSJ: “Insurers generally retain the contractual right to change these percentages, subject to regulator-approved limits. They also typically can raise the cost of the death benefit, per contractual provisions.” What? Even the floors and cap percentages are subject to change and not guaranteed?
• In my experience, the loudest supporters of this product tend to be the people who sell them. Why are some things pressured upon you initially as the best thing since sliced bread, but immediately after purchase they become nearly impossible to sell again? The second you buy it, it has lost a huge part of its value. Reminds me of timeshares. Look out for big surrender charges for 10+ years because they have to recover the big upfront commission paid to the salesperson.

I can see how the idea of “stock market-linked returns with less risk” can be attractive, and I would be intrigued if there became some sort of commodity product where multiple companies sold essentially the same thing and competed to drive down prices. However, the current way of selling IULs is too vague and hard to understand for the average customer.

I’m a relatively conservative investor myself, but UILs have all sorts of risks. Side-by-comparisons are hard, so you risk buying a bad version of the product. There is no fixed return, like a fixed annuity. If the stock market tanks, you still risk getting a lousy return. There is a risk the issuer will change the growth rules on you. As with all insurance, the issuer could become insolvent somewhere in there. I prefer my term life insurance policy, as it gives my family a guaranteed fixed payout at a low fixed price after comparing prices side-by-side with several issuers that all offered the exact same product.

My recommendation is simply to steer clear of them all. If you are my loved one and are reading this, my advice is not to buy an indexed universal life policy. Definitely don’t use my hard-earned money to buy one!