When it comes to offering health insurance to pastors and clergy, churches with tight budgets may feel like they have no good options. Some large independent churches and many denominations offer group health insurance plans, but more and more denominations are dropping coverage for their pastors and smaller independent churches because they simply can’t afford expensive group health insurance premiums.
If you’re looking for an affordable way to take care of your pastor’s health benefits, however, you have more options than you think.
In this article, we’ll go over three ways you can offer health insurance to your church staff by using:
- Traditional group health insurance
- Health reimbursement arrangements (HRAs), including integration with premium tax credits
- Taxable stipends
Option 1: Traditional group health insurance
The first option is a group health insurance policy purchased through a federal or state marketplace or a broker. This is the traditional route for finding health insurance, but it doesn’t come without complications.
Given the rising cost of health insurance, a group plan isn’t always an option for churches. Many small churches have a small budget to match, so a group health insurance plan may not be feasible.
Additionally, you may have to meet a set participation rate, meaning that if you don’t have enough employees who enroll in the plan, you won’t be able to offer it all. This is especially difficult if the available plans aren’t suitable for meeting all your employees’ needs.
Option 2: Health reimbursement arrangements (HRA)
A more customizable option for pastors and ministers is a health reimbursement arrangement (HRA). An HRA is an IRS-approved health benefit used to reimburse employees for out-of-pocket medical expenses and individual health insurance premiums.
While the QSEHRA is only for organizations with less than 50 employees, an ICHRA is for organizations of all sizes. So no matter your organization’s size, there’s an HRA that works for you.
With an HRA, the reimbursement process follows three simple steps:
- The organization sets a monthly allowance of tax-free money they will offer to their eligible employees to use on healthcare expenses.
- It’s important to note that QSEHRAs have annual contribution limits set by the IRS, however, ICHRAs have no contribution limits.
- Employees purchase the health insurance policy and healthcare essentials that work best for them. If their insurance policy meets minimum essential coverage (MEC), their reimbursements will be income tax-free.
- Employees submit proof they incurred an eligible expense typically in the form of a receipt or invoice. Once the expense is reviewed and approved, the employee is reimbursed up to their allowance amount.
For healthcare sharing ministries, membership fees or donations aren’t eligible for reimbursement since healthcare sharing ministry programs aren’t considered insurance under the Affordable Care Act (ACA). However, pastors and clergy can still use their HRA allowance to pay for out-of-pocket expenses, including prescription drugs, counseling, over-the-counter medicine, and more.
HRAs and premium tax credits
Depending on their income level, pastors may qualify for premium tax credits. Premium tax credits lessen the financial stress of purchasing individual health insurance by lowering the cost of individual health insurance purchased through the federal marketplace or state exchanges.
This can get tricky if you’re offering an HRA, and the rules are different depending on which type of HRA you’re offering. Let’s start with the QSEHRA. If a pastor has premium tax credits and is participating in a QSEHRA, they must reduce their premium tax credit dollar-for-dollar by their monthly HRA allowance.
With an ICHRA, employees with a premium tax credit can’t keep their tax credit while also participating in the HRA. Per ICHRA regulations, the employee must either waive their premium tax credit to participate in the ICHRA or opt-out of the ICHRA to receive their full premium tax credit.
Option 3: Taxable stipends
If you’re looking for a more relaxed benefit option, then a taxable stipend is your best option. With a stipend, organizations can simply offer their pastors and other church staff a fixed amount of money that can be spent on health insurance premiums and other medical costs.
The stipend is essentially extra money added to the pastor’s paycheck to be used however they like, so the additional funds aren’t regulated and are subject to income taxes.
Stipends are more flexible than HRAs when it comes to premium tax credits. Employees can participate in their church’s stipend benefit and collect their full premium tax credit with no reduction in the credit amount. Employers may also prefer stipends because they are simple to administer with less compliance hassle than other health benefit options.
Pastors and clergy often fall through the cracks when it comes to health insurance benefits, simply because small churches can’t afford to offer any. Larger churches might be able to purchase their own group plans, but smaller churches often struggle to offer any type of health coverage for their pastor.
However, offering a health plan doesn’t have to be costly—by considering non-traditional health options like an HRA or health insurance stipend, you can help your pastors stay healthy and happy.
With WorkPerks from PeopleKeep, your organization can easily set up and administer a taxable health stipend for pastors and clergy. Simply set a monthly allowance and approve reimbursement requests through our software.
If you’re ready to offer a high-quality, stress-free health benefit to your pastors and clergy, PeopleKeep is here to get your started. Contact a personalized benefits advisor today to get set up with a health benefit that will be right for your religious organization.
This article was originally published on October 27, 2020. It was last updated February 4, 2022.