When it comes to offering healthcare to employees, many smaller nonprofits feel like they do not have affordable options. While nonprofits want to take care of their employees, many organizations are unable to afford traditional group health insurance or do not meet the minimum participation requirements. In fact, a recent report by the Department of Health and Human Services found only 47 percent of nonprofits with fewer than 50 employees provide employees health insurance coverage today.
Sound familiar? If so, here’s a fresh perspective - there is a more affordable way to offer employees healthcare. Instead of providing traditional group health insurance, many nonprofit organizations are setting up a formal benefits plan to reimburse employees for their individual health insurance premiums. This article takes a look at how and why this approach can yield cost savings while also better meeting the benefit expectations of employees.
Understanding Cost Savings
To understand why a reimbursement approach can work so well, consider this - on average, individual health insurance policies cost less than a small group health insurance policy. Here’s a look at the national data.
For single coverage, an individual policy costs $3,587 a year on average - a 43 percent savings compared to average group coverage at $6,251 a year. Factor in the tax subsidies available for individual coverage and the savings increase up to 60 percent annually.
For family coverage, an individual policy costs $10,739 a year on average - a 39 percent savings compared to average group coverage at $17,545 a year. If eligible for tax subsidies, savings for individual family coverage average 68 percent.
The beauty of employer-funded individual health insurance is the nonprofit’s contribution amount is completely set and controlled by the organization. There are no minimum contribution requirements and no annual renewals.
Exact cost savings will vary by location and employee demographics. Below is an example of typical cost savings (based off 2014 health insurance costs for the state of Illinois). In this example, a 45-person nonprofit saved $275,058 annually (61 percent) with employer-funded individual health insurance.
Source - Zane Benefits
Taking Care of Loyal Employees
In addition to cost, many nonprofit organizations value offering healthcare benefits to take care of their loyal, hard working employees. How does employer-funded individual health insurance provide employees access to quality healthcare?
With this type of health benefit, employees may choose any individual or family plan tailored to their own needs, including coverage level, carrier, and provider network.
For example, if a young employee is relatively healthy and on a tight budget, a plan with a lower premium and higher deductible may be the right choice. On the other hand, if an older employee has ongoing medical needs, a plan with a higher premium and lower deductible may be the better plan.
Additionally, if employees meet certain income limits, they may access the federal health insurance subsidies lowering their premium cost even further.
By using online software, health benefits are easy and inexpensive for the nonprofit to administer. Some nonprofits consider reimbursing their employees without a formal plan or compliant software, however, remaining in compliance with federal regulations and health reform can be costly, time-consuming, and an administrative hassle.
A credible software tool eliminates the time, costs, and administrative hassle of offering health benefits. Nonprofit organizations who select a premium reimbursement software provider can expect to:
- Spend less than five minutes per month administering their reimbursement plan
- Have access to their reimbursement plan online 24/7
- Incorporate reimbursements with their existing payroll system and HR processes
- Have built-in compliance safeguards
Premium Reimbursement Software Ensures Compliance
The IRS allows this type of tax-free individual health insurance reimbursement only if legal plan documents are in place, and it is administered in accordance with federal guidelines and regulations. By using premium reimbursement software, the nonprofit organization ensures compliance with:
- ACA Requirements, including the “Market Reforms”
Nonprofit organizations all over the country are adopting employer-funded individual health insurance to offer more affordable health benefits. With this approach, nonprofit organizations can control the cost, provide quality benefits, spend less time administering benefits, and stay in compliance.
Editor's Note: This post has been updated with the most current health insurance information. The article was originally published in October of 2014.
What questions do you have about affordable healthcare for nonprofits? Leave a comment or question below.