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Saturday, January 18, 2020

Idaho SC sides with Texas-based nonprofit; says it's not an insurer

By Jessica M. Karmasek | Mar 20, 2013


BOISE, Idaho (Legal Newsline) -- The Idaho Supreme Court last month said a lower court erred in determining that Austin, Texas-based Altrua HealthShare -- one of a few nonprofit health sharing organizations nationwide -- is an insurer.

The state's high court, in its Feb. 25 opinion, agreed with Altrua that it cannot be an insurer because it simply administers members' funds through an escrow account and assumes no risk of paying members' claims.

The Ada County District Court had affirmed the Idaho Department of Insurance's determination that Altrua transacted insurance without a certificate of authority in violation of state law.

Idaho Attorney General Lawrence Wasden represented the insurance department, along with director Bill Deal, in the dispute.

Altrua argued on appeal that both the department and the district court erred in finding that it was an insurer because the nonprofit never assumed the risk of paying its members' medical bills.

The department found, and the district court affirmed, that when members make their predetermined monthly payments into the escrow account Altrua operates, the risk of payment shifts from the individual members to the escrow account, and in turn to Altrua.

Altrua also argued that the department's determination that it is an insurer despite the disclaimers in its membership contract to the contrary is an "unconstitutional interference" with its right to contract.

According to the nonprofit's website, "Altrua HealthShare members understand that this is NOT an insurance company. Rather, we are a group of many families across the United States who shares each other's burdens in the area of health care costs."

Chief Justice Roger Burdick, who authored the court's seven-page opinion reversing and remanding the case, said whether Altrua transacted insurance depends on whether the contract between the nonprofit and its members is an insurance contract.

Idaho Code section 41-102 defines insurance as "a contract whereby one undertakes to indemnify another or pay or allow a specified or ascertainable amount or benefit upon determinable risk contingencies."

In this case, the hearing officer found that the definition "centers on the phrase 'undertakes to indemnify'" and concluded that "the fundamental attribute of insurance is risk sharing." The officer focused on the first type of insurance contract under section 41-102's definition -- those that undertake to indemnify another.

Altrua did not disagree with this definition of insurance -- just the officer's determination that its membership contract falls within this definition.

"This Court agrees with Altrua that under this definition it is not an insurer," Burdick wrote.

The court said the officer correctly determined that for Altrua's membership contract to be a contract that seeks to indemnify another, it must shift the risk of paying members' claims from the individual members to Altrua.

"Despite the high level of control Altrua exercises over the escrow account, simply operating the account does not mean that Altrua assumes the risk of paying members' claims. Altrua does not pay any of its members' claims with its own funds; rather, all of claims are paid out of the escrow account, which is made up entirely of members' contributions," the chief justice explained.

"While the Hearing Officer is correct that the terms of the membership contract place the discretion for payment in Altrua's hands, this is not the same thing as assuming the risk of paying members' claims."

And despite the disclaimers in Altrua's contract, the structure of the membership plan and statements made in Altrua's brochure and guidelines are "substantial and competent evidence" supporting the officer's finding that the nonprofit's membership contract creates a "reliance interest" in its members that their claims will be paid, the court said.

"However, this reliance is not sufficient on its own to make Altrua an indemnitor," it added.

"Altrua must assume some of the risk of paying its members' claims for its membership contract to be one undertaking to indemnify its members. Controlling the escrow account containing the members' funds is not sufficient evidence that Altrua personally assumes any risk of paying members' claims."

Burdick said Altrua may have an obligation under the language of its contract -- despite its disclaimers -- to pay certain member claims so long as funds are available, but there is no evidence in the record that Altrua has guaranteed or assured payment of members' claims.

"Therefore, the Hearing Officer's conclusion that Altrua's membership contract is an insurance contract because Altrua assumes some risk of paying its members' claims is clearly erroneous."

Justice Daniel Eismann, in a concurring opinion, said the case is a "prime example" of an administrative agency exceeding its statutory powers "in an attempt to protect citizens from themselves."

"Although this clearly did not involve health insurance, the Department ignored the terms of the contract in order to find that it was a contract of insurance so that it could prevent Idahoans from entering into this type of contractual arrangement," he wrote.

"The people contracting with Altrua Healthshare are adults who presumably understand the risk they are taking by making monthly payments into the escrow fund, but are willing to do so as a means of paying for future health expenses that they may incur."

He continued, "The Department is not tasked with the responsibility of making sure citizens do not make decisions it considers to be unwise. Whether people should enter into this type of arrangement is for them to decide, not the Department."

From Legal Newsline: Reach Jessica Karmasek by email at

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