When it comes to offering health insurance to pastors and clergy, churches may feel out of options. They want to take care of their pastor and staff, but are often not able to afford and/or qualify for a traditional group health insurance plan.
So, what are the options?
First, to understand health insurance options for pastors, it’s important to note the difference with denominational and independent churches. A denominational church belongs to a large national or international organization with a central organizational office. An independent church is one that operates on its own or in a loose affiliation with other churches of similar faith. Independent churches are not part of any hierarchical structure.
With that in mind, denominations that provide health insurance to their pastors usually do so through a group policy purchased by the denomination’s main office. However, more and more, denominations are dropping health insurance coverage for their pastors.
Therefore, independent churches (and many denominational churches) are typically left to find their own health insurance for their pastors, clergy, and staff.
2 Core Health Insurance Options for Pastors
There are two core options for health insurance.
1. A Traditional Group Health Insurance Policy
The first option is a group health insurance policy, purchased through a health insurance broker. This is a traditional route for health insurance, but smaller churches who only want to cover one pastor or a few employees often have trouble affording and/or qualifying for a plan. And, as we'll discuss below, a group health insurance plan is usually not the best or most affordable health insurance option.
2. Reimburse the Pastor for Individual Health Insurance
The second option is a reimbursement plan like the Small Business Health Reimbursement Arrangement (HRA), in which the church reimburses the pastor for individual/family health insurance. With this approach:
The church defines how much they can contribute to health insurance, up to the federally defined annual cap ($4,950 for single employees and $10,000 for employees with a family).
The church sets up an HRA giving eligible employees a monthly allowance (e.g., $150/month to the pastor).
The pastor (and other eligible employees) purchase an individual health insurance policy and are reimbursed tax-free up to their monthly allowance.
There are no minimum contribution requirements, so the church can offer allowances that fit their budget.
There are no minimum participation requirements, so the church can offer the allowance to a staff of just one pastor, or to all full-time employees of a more sizable staff (as long as there are fewer than 50).
This approach is often called defined contribution. To read more on why this works well for churches see:
FAQ: Do Pastors Qualify for Government Assistance?
Depending on their income, pastors may qualify for premium tax credits (which lowers the cost of individual health insurance purchased through the new health insurance Marketplaces), or they may qualify for Medicaid if their income is low enough.
For example, if the pastor's household income is less than about $46,000 in 2014 (or less than about $95,000 in 2014 for a family of four), then they would be eligible for the premium tax credits.
However, if a pastor participates in a Small Business HRA, he or she must reduce their premium tax credit dollar-for-dollar by the monthly HRA allowance.
Read more: How to Qualify for Premium Tax Credits.
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