COMMONWEALTH OF KENTUCKY VS. REINHOLD (E. JOHN), ET AL.Annotate this Case
RENDERED: OCTOBER 10, 2008; 2:00 P.M.
TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
COMMONWEALTH OF KENTUCKY
APPEAL FROM FRANKLIN CIRCUIT COURT
HONORABLE THOMAS D. WINGATE, JUDGE
ACTION NO. 02-CI-00837
E. JOHN REINHOLD, D/B/A AMERICAN
EVANGELISTIC ASSOCIATION; MEDI-SHARE;
CHRISTIAN CARE MINISTRY
BEFORE: NICKELL AND THOMPSON, JUDGES; ROSENBLUM,1 SPECIAL
ROSENBLUM, SPECIAL JUDGE: This case arises from a judgment of the
Franklin Circuit Court finding that Medi-Share does not constitute insurance under
Kentucky Law and is exempt from state regulation under the religious publication
exclusion. The Commonwealth appeals both findings. Although we recognize
Retired Judge Paul W. Rosenblum presiding as Special Judge by assignment of the Chief
Justice pursuant to Section 110(5) (b) of the Kentucky Constitution.
many similarities between Medi-Share and the business of insurance, we find that
Medi-Share does not constitute insurance under Kentucky Law because all risks
and obligations to pay remain with the subscriber. Further, we find that MediShare does constitute a religious entity free from state regulation under KRS 304.1120. Therefore, we affirm the judgment of the Franklin Circuit Court.
The American Evangelistic Association (AEA) and the Christian Care
Ministry (CCM) distribute Medi-Share, a nonprofit publication designed to help
subscribers with medical expenses. Medi-Share acts as a matching service for
those subscribers who have medical expenses and donors who are willing to pay
those expenses. Subscribers are able to join Medi-Share by completing a detailed
application process that affirms his/her commitment to the Christian religion. Each
applicant must live by biblical principles, regularly attend church, and must abstain
from tobacco, illegal drugs, and the abuse of legal drugs, including alcohol. In
addition, each applicant must submit his/her pastor’s contact information so that
the applicant’s profession of faith may be verified. Upon acceptance, subscribers
must pay a monthly subscription fee.
By joining Medi-Share, subscribers with financial needs arising from
medical expenses are matched with subscribers who are willing to donate money to
meet those financial needs. When subscribers submit a request for financial
assistance with their medical expenses, Medi-Share creates a subaccount, similar to
an escrow account. Donors send the contributions directly to Medi-Share, where
the donations are placed in the subaccount created for the specific claim.
Medi-Share does not guarantee that any requests will be matched by
donors. In fact, Medi-Share warns subscribers in both the application and in the
Medi-Share guidelines that Medi-Share is not insurance and that it does not
guarantee payment of any claim. It merely facilitates the donation process. The
Medi-Share application and guidelines state:
ATTENTION- This publication is not issued by an
insurance company nor is it offered through an insurance
company. This publication does not guarantee or
promise that your medical bills will be published or
assigned to others for payment. Whether anyone chooses
to pay your medical bills will be strictly voluntary. This
publication should never be considered as a substitute for
an insurance policy. Whether or not you receive any
payments for medical expenses and whether or not this
publication continues to operate, you are responsible for
payment of your own medical bills.
Although Medi-Share claims not to be in the “business of insurance,”
the Medi-Share publication has many similarities to insurance. Subscribers pay a
monthly subscription cost similar to a premium. If subscribers do not pay the
monthly fee, their subscription is cancelled. Subscribers must meet deductibles
before their claim is paid, and denied claims are submitted to a review board.
Further, Medi-Share employs claims adjusters and spends over a million dollars
annually on marketing.
The Commonwealth of Kentucky filed suit in the Franklin Circuit
Court on June 21, 2002, alleging that Medi-Share, AEA, and CCM were engaging
in the unauthorized sale of insurance. The Circuit Court held a bench trial on
October 25-26, 2006, which resulted in its findings that Medi-Share does not
constitute insurance under Kentucky law and is exempt from state regulation
because it is a religious publication. The final judgment was entered January 18,
2007. On January 26, 2007, the Commonwealth filed a motion to vacate the circuit
court judgment, which was later denied by the circuit court. This appeal follows.
The Commonwealth contends that, although Medi-Share claims that it
is not an insurance company, the publication nevertheless constitutes insurance
under Kentucky Law. We agree with the Commonwealth that an organization may
be in the business of insurance even though it denies the label of insurance.
However, the question is not whether an organization describes itself as insurance,
but whether the actions of the organization function to insure its members.
Wheeler v. Ben Hur Life Ass’n, 264 S.W.2d 289, 291 (Ky. 1953); Allin v.
Motorists’ Alliance of America, 29 S.W.2d 19, 23 (Ky. 1930). “It is elementary
that the law looks at substance instead of form, and is not deceived by the gloss of
words.” Wheeler at 291.
The United States Supreme Court described insurance as, “an
arrangement for transferring and distributing risk.” Group Life & Health Insurance
Co. v. Royal Drug Co., 440 U.S. 205, 211, 99 S.Ct. 1067, 1073, 59 L.Ed.2d 261
(1979). The Court stated that “the primary elements of an insurance contract are
the spreading and underwriting of a policyholder’s risk. It is characteristic of
insurance that a number of risks are accepted, some of which involve losses, and
that such losses are spread over all the risks so as to enable the insurer to accept
each risk at a slight fraction of the possible liability upon it.” Id. at 211.
In addition to defining insurance, the United States Supreme Court
gave courts further guidance in Metropolitan Life Insurance Co. v. Massachusetts,
471 U.S. 724, 743, 105 S.Ct. 2380, 2391, 85 L.Ed.2d 728 (1985) (quoting Union
Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 129, 102 S.Ct. 3002, 3008, 73 L.Ed.2d
647 (1982)), where the Court identified three criteria that indicate a company is in
the “business of insurance.”
[F]irst, whether the practice has the effect of
transferring or spreading a policyholder’s risk;
second, whether the practice is an integral part
of the policy relationship between the insurer
and the insured; and third, whether the practice
is limited to entities within the insurance industry.
Id. at 743.
Central to the United States Supreme Court’s analysis of the “business
of insurance” is the distribution of risk between the policy holder and the insurer.
Here the Commonwealth has not and cannot show a distribution of risk between
Medi-Share and its subscribers. Medi-Share consistently renounces any liability or
guaranteed payment of claims. In both the Medi-Share guidelines and application,
subscribers are warned that the payments of claims are merely voluntary gifts from
one subscriber to the other. Further, Medi-Share specifically states that the
publication itself does not pay any claims. The Commonwealth contends that risksharing is not the only element indicative of the “business of insurance.” While we
agree that other factors must be considered, as stated by the Court in Metropolitian
Life Insurance, we find that risk-sharing is a significant part of the analysis.
The Commonwealth compares Medi-Share to the case of Buck Run
Baptist Church, Inc. v. Cumberland Sur. Ins. Co., 983 S.W.2d 501, 504 (Ky.
1998), where the Kentucky Supreme Court found that the business of insurance
existed when losses were distributed through the market by means of a premium.
The Commonwealth argues that the subscription fee required by Medi-Share is
analogous to a premium thereby indicating the business of insurance. We disagree
because the monthly subscription fee does not act as a premium to spread risks.
Medi-Share does not pool subscription fees and pay claims from a pool. Instead,
each claim or request has a specific subaccount. Subscribers donate to those
specific accounts rather than a pool. While insurance companies pay claims from
company funds, Medi-Share does not. Thus, the operation of Medi-Share does not
constitute the business of insurance.
While the United States Supreme Court has provided courts with
guidelines to determine whether an organization is in the business of insurance,
states have the authority to regulate the sale of insurance. Kentucky law defines
insurance as "a contract whereby one undertakes to pay or indemnify another as to
loss from certain specified contingencies or perils called ‘risks,’ or to pay or grant
a specified amount or determinable benefit or annuity in connection with
ascertainable risk contingencies, or to act as surety.” KRS2 304.1-030. Although
the Commonwealth argues that Medi-Share acts as insurance, under Kentucky law,
the Commonwealth fails to prove that Medi-Share indemnifies subscribers against
Kentucky Revised Statutes.
risks, pays or grants a specified amount or determinable benefit or annuity in
connection with ascertainable risk contingencies, or acts as a surety as required by
In addition to the Commonwealth’s claim that Medi-Share is in the
business of insurance, the Commonwealth also claims that Medi-Share is not
exempt from insurance state regulation because it does not qualify as a religious
publication. Kentucky law excludes religious publications from regulation under
the Kentucky Insurance Code. KRS 304.1-120.3 Because we find that Medi3
KRS 304.1-120(7) provides the following definition:
(7) A religious publication (as identified in this subsection), or its subscribers, that limit their
operations to those activities permitted by this subsection, and;
(a) Is a nonprofit organization;
(b) Is limited to subscribers who are members of the same denomination or
(c) Acts as an organizational clearinghouse for information between subscribers
who have financial, physical, or medical needs and subscribers who choose to
assist with those needs, matching subscribers with the present ability to pay with
subscribers with present financial or medical need;
(d) Pays for the subscribers’ financial or medical needs by payments directly
from one (1) subscriber to another;
(e) Suggests amounts to give that are voluntary among the subscribers, with no
assumption of risk or promise to pay either among the subscribers or between the
subscribers and the publication; and
(f) Provides the following verbatim written disclaimer as a separate cover sheet
for all documents distributed by or on behalf of the exempt entity, including all
applications, guidelines, promotional or informational materials, and all periodic
“This publication is not issued by an insurance company nor is it offered through
an insurance company. This publication does not guarantee or promise that your
medical bills will be published or assigned to others for payment. Whether
anyone chooses to pay your medical bills will be totally voluntary. This
publication should never be considered as a substitute for an insurance policy.
Whether you receive any payments for medical expenses and whether or not this
Share is not insurance, the Commonwealth’s claim that the trial court erroneously
held that Medi-Share is exempt from regulation because of its status as a religious
publication is moot. Nevertheless, after reviewing the record, we conclude that the
trial court correctly based this finding on substantial evidence that Medi-Share’s
practice is directly in line with the religious publication exemption described in
As required by the statute, Medi-Share clearly proved that it is a
nonprofit organization that acts as a matching service for Christians with medical
expense needs with Christians willing to donate toward those medical expenses.
Furthermore, Medi-Share adequately warns subscribers that the donation process is
completely voluntary and that Medi-Share does not guarantee the payment of any
claim. Medi-Share also provides subscribers with an adequate disclaimer that
complies with the disclaimer requirement of KRS 304.1-120. In order to satisfy
the requirements of a religious publication and to be exempt from state regulation
under KRS 304.1-120, Kentucky law also requires that donations are directly sent
from donors to the subscribers in need of assistance. Medi-Share, however, does
not allow donor subscribers to donate directly to members in need. Instead, donors
must send contributions to Medi-Share which in turn deposits the donations in the
specific subaccount. Although the subscribers must send their donations to MediShare for placement in the subaccounts, the process simply acts as a trust for
subscribers, an amalgamation of the Medi-Share members/subscribers. Therefore,
publication continues to operate, you will always remain liable for any unpaid
Medi-Share complies with all requirements for religious publications exempt from
state regulations under the Kentucky Insurance Code.
Because the questions of whether a contract of insurance exists and
whether an entity constitutes a religious publication are issues to be determined by
a trier of fact, we must assess whether the trial court’s judgments were based upon
substantial evidence. James Graham Brown Fdn. v. St. Paul Fire & Marine Ins.
Co., 814 S.W.2d 273 (Ky. 1991); Nat’l Insurance Underwriters v. Lexington
Flying Club, 603 S.W.2d 490 (Ky.App. 1979). We find that the trial court’s
findings that Medi-Share does not constitute insurance and that Medi-Share is a
religious publication exempt from regulation under the Kentucky Insurance Code
are supported by substantial evidence.
Accordingly, we affirm the judgment of the Franklin Circuit Court.
NICKELL, JUDGE, CONCURS IN RESULT ONLY AND FILES
NICKELL, JUDGE, CONCURRING IN RESULT ONLY. I
reluctantly agree with the majority’s conclusion that the health care contrivance
manifested in Medi-Share is not insurance as defined by KRS 304.1-030 which
requires a sharing of risk. Medi-Share has cleverly insulated itself from
shouldering any risk on behalf of its subscribers, and therefore cannot be
characterized as insurance under our current statutory definition.
My review of this self-described alternative health care plan indicates
Medi-Share accepts monthly contributions from people of faith and distributes
those donations as its claims adjusters and plan administrators see fit. Medi-Share
assumes no risks for payment of medical expenses incurred by its subscribers,
though it does take a hefty cut of the funds to operate and promote its purportedly
biblically based ministerial service. In this fashion, Medi-Share operates as an
informational clearinghouse while processing contributions of the faithful and
distributing payments to those it deems worthy pursuant to its complicated and
confusing policies and procedures and unfettered discretion.
All risk arising under this arrangement is borne by the individual
participants. Those participants desiring to offer financial assistance to help likeminded members of their faith give their well-intentioned money to Medi-Share
and trust it to make sound business, financial, and health care decisions in
dispersing their collective funds. For them, Medi-Share is an administrator for the
collection, protection, and disbursement of their charitable donations. Those
participants hoping for financial assistance to pay health care bills also give their
money to Medi-Share, but they alone bear the risk of having their requests denied
as unworthy and noncompensable, as subscribers in other states have learned
After close inspection of KRS 304.1-030, I am forced to conclude that
absent a sharing of risk on its part, Medi-Share does not satisfy Kentucky’s current
statutory definition of insurance, and therefore is not subject to regulation under
our insurance code. To that extent, I concur with the majority opinion.
However, while I agree with the majority’s holding that Medi-Share is
not insurance under our current statutory definition, I disagree with its dicta that
even if Medi-Share were deemed insurance under KRS 304.1-030, it would be
exempt from state regulation because it meets the statutory requirements of a
religious publication. Under KRS 304.1-120, a hallmark of a religious publication
is the direct transfer of money from one party to another. “Direct” means “from
point to point without deviation,” “from the source without interruption or
diversion,” and “without an intervening agency or step.” Merriam-Webster’s
Collegiate Dictionary 327 (10th ed. 2002). The Medi-Share schema or blueprint
does not satisfy that element. Contributions are not paid directly from donor to
donee. Medi-Share collects, manages, and disburses contributions donated by
some subscribers, acting as donors, for the benefit of other subscribers, as donees,
when health care needs arise. Contributions sent to Medi-Share by such
subscribers are placed into an account to be drawn upon for the benefit of the
subscriber in need of health care, and Medi-Share disburses funds on behalf of the
needy subscriber, when deemed worthy, under its guidelines. Not only is there no
direct transfer of funds between the donor and donee, but all control over
disbursement of contributed funds is surrendered to the discretion of Medi-Share.
Thus, under the Medi-Share health care plan there is no direct transfer
of money from a donor to a donee as required to qualify for the religious
publication exemption under KRS 304.1-120(7)(d), and Medi-Share would not
thereby be exempt from regulation under our insurance code. Even so, because we
have held Medi-Share is not insurance under our current statutory definition,
whether Medi-Share qualifies for the religious publication exemption is moot.
Finally, while Medi-Share has carefully mapped its self-described
alternative health care plan to reside just outside the boundaries of our current
statutory definition of insurance, it no less should require governmental oversight
and regulation. Medi-Share claims Paul’s admonition to the church, found at
Galatians 6:2, “Bear ye one another’s burdens, and so fulfill the law of Christ,” as
its biblical foundation. However, I am also mindful of the admonition of Jesus
found at Mark 12:17, “Render unto Caesar the things which are Caesar’s, and unto
God the things that are God’s.” This exhortation is widely cited to describe the
proper relationship between Christianity and secular authority, and stands for the
proposition that spiritual commandments supersede earthly laws but do not abolish
them. Even if Medi-Share’s participants take a step of blind faith by simply
accepting its self-professed good intentions and purportedly sound business
practices regarding its alternative health care plan, government need not close its
eyes to its duty to safeguard the significant public policy of protecting consumers
from industries rife with opportunity for fraud and mismanagement.
Reducing health care costs and making health care protection more
widely available and affordable are commendable goals, and nothing in this
concurring opinion should be taken to imply any wrongdoing by Medi-Share.
However, Medi-Share’s unabashed attempt to avoid regulatory oversight and
review demanded of health insurers should awake suspicious eyes from slumber
and stir legislative inspection and action. Medi-Share’s purveyors have obviously
taken great pains to avoid using insurance jargon in their literature, and have
included all the necessary disclaimers in their glossy sales pitch. However, the fact
that Medi-Share has clothed its alternative health care protection plan in spiritual
terminology and scriptural passages does not hide the fact that at its core it still
represents, at best, a supplemental plan for payment of the health care needs of its
trusting subscribers, and, at worst, a poor substitute for regulated health insurance.
Likewise, religious vestments do not miraculously transform a business enterprise
into a ministry.
If truly spiritually based and morally, ethically and financially sound,
Medi-Share and similar alternative health care protection programs should find no
enemy in reasonable regulatory oversight. Indeed, the public trust, faith and
acceptance generated by such inspection and accountability should be welcomed as
a means of growing this budding industry.
While I join the majority opinion in holding Medi-Share does not
satisfy our current statutory definition of insurance, and therefore is not subject to
state regulation, I strongly encourage Kentucky’s General Assembly to consider
adopting legislation to rein in this new brand of health care protection before it
runs wild, stampedes and tramples the rights and reasonable health care protection
Kentuckians expect. I wholeheartedly agree with the minority that our government
bears a heavy and sacred duty to protect unwary consumers who may be led down
the broad path of entrusting their hard-earned health care dollars to business
enterprises of this sort. Yet, regardless of how other jurisdictions have
characterized Medi-Share and its siblings under their respective statutory language,
we as an appellate court are constrained to apply Kentucky’s distinctive statutory
definitions and regulations as promulgated by our General Assembly. For the
foregoing reasons, I concur with the majority in result only.
THOMPSON, JUDGE, DISSENTS AND FILES SEPARATE
THOMPSON, JUDGE, DISSENTING: I respectfully dissent from
the majority’s opinion. Its conclusion that Medi-Share is not insurance defies
common sense and our statutory law. In a broader context, I fear a plethora of
similar purported “religious publications” will be sold in Kentucky and remain
unregulated in an insurance industry susceptible to unscrupulous tactics.
I begin my analysis in the context of the statutory presumption that a
person or entity that provides health coverage whether by direct payment,
reimbursement, or otherwise is presumed to be subject to regulation by the
insurance code. KRS 304.11-045(2). The omission of the term “insurance” in the
Medi-Share contract is immaterial to our inquiry. Allin v. Motorists’ Allliance of
America, 29 S.W.2d 19, 23 (Ky.App. 1930). As observed in National Home Ins.
Co. v. King, 291 F.Supp.2d 518, 527-528 (E.D. Ky. 2003), if only the language in a
contract was determinative, “anyone could avoid regulation . . . simply through
documentary disclaimers.” The resolution of the issue depends on not what the
contract says, but what it does. Id. What Medi-Share does is insure its subscribers.
Medi-Share subscribers pay an application fee and substantial
monthly premiums. Although termed an “extra-blessing gift,” if payments are late,
the subscribers are charged a late fee. Claims are paid only after meeting certain
deductibles and denied if the subscriber had a preexisting condition. If payments
are not made, the coverage is cancelled. Medi-Share has a right to subrogation and
reimbursement and has increased its premium costs based on claim history and
actuarial analysis. Claims are submitted to claim adjustors for review and, after
deduction of co-payments, eligible claims are paid by Medi-Share from monthly
premiums collected from other Medi-Share members. The subscribers are
provided a Preferred Provider List and are penalized if they use out-of-network
providers. To solicit subscribers, the advertising budget for Medi-Share is $3,705
per day for marketing strategies and $150 per hour plus invoiced media expressed
to recruit new members and improve profitability.
The Attorney General has a sacred duty to protect the consumers who
trust their funds to this type of enterprise, and I must agree with the Attorney
General that this organization must be regulated and supervised.
Despite the indicia that Medi-Share is insurance, the majority
concludes that because there is no “risk-sharing” it is not insurance. Although
Medi-Share argued that it assumes no risk for the payment of medical costs, its
actions and advertisements demonstrate to the contrary. It is the prospect that the
subscribers’ medical costs will be paid that induces them to pay the monthly
premium. Thus, the “risk” is spread among the Medi-Share subscribers for which
they pay a premium.
I also disagree that Medi-Share is within the religious publication
exemption contained in KRS 304.1-120. The General Assembly enacted KRS
304.1-120 so that bill-sharing ministries would be exempt from state insurance
laws. The statute specifically states that among the requirements for its application
is that the religious organization act as a “clearinghouse for information between
subscribers” and pay for the subscribers’ financial or medical needs by payments
directly from one subscriber to another. It exempts from regulation those religious
organizations that act solely as a conduit for charitable giving, not those in the
business of selling insurance. Because I believe Medi-Share is insurance, it is not
exempt from state insurance laws.
The reality is that Medi-Share is insurance and expends over
$1,000,000 per year for advertising and marketing strategy. It routinely holds in
escrow large sums of money for third-party beneficiaries and, as a consequence,
has a fiduciary duty to pay those funds on behalf of third-party beneficiaries. Yet,
the majority has effectively given Medi-Share and similar businesses permission to
operate within the Commonwealth free from regulation and supervision by the
Commonwealth. As pointed out by the Attorney General, the consumers in states
such as Ohio have incurred the financial consequences of the lack of regulation of
such businesses. The funds provided by the consumers with the expectation that
they have insurance to cover their medical needs are subject to waste and
embezzlement by the people to whom the funds are entrusted. Unfortunately, it is
historically accurate to state that under the guise of religion, many have been
defrauded. I agree with the Attorney General that Medi-Share and similar
businesses must be regulated and supervised.
The appellant’s brief contains opinions from six states that have
considered the precise issue before us and have concluded that Medi-Share is
insurance subject to insurance laws. By virtue of the majority opinion, Kentucky
has taken a different course and, unfortunately, given permission for our citizens to
be subject to potential scams and other unscrupulous tactics. I do not accuse MediShare of any wrongdoing but only write to express my view that it is insurance
subject to our insurance regulations and laws. Accordingly, I would reverse the
Franklin Circuit Court.
BRIEFS FOR APPELLANT:
BRIEF FOR APPELLEE:
Gregory D. Stumbo
Richard L. Masters
D. Brent Irvin
Assistant Attorney General
Brent L. Caldwell