When it comes to offering health benefits 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 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 between 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.
Independent churches (and many denominational churches) are typically left to find their own health insurance for their pastors, clergy, and staff.
The three primary health insurance options for pastors
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.
Reimburse the pastor for individual health insurance
The second option is a reimbursement plan like the qualified small employer health reimbursement arrangement (QSEHRA), in which the church reimburses the pastor for individual/family health insurance. The process for reimbursing a pastor for individual health insurance is:
- The church defines how much they can contribute to health insurance, up to the federally defined annual cap (for 2020, these are $5,250 for single employees and $10,600 for employees with a family).
- The church sets up a QSEHRA giving eligible employees a monthly allowance (for example, $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. Note that for ministries that use healthcare sharing (like Medi-Share), the reimbursements are not tax-free unless the employee also purchases Minimum Essential Coverage (MEC). Proposed legislation could change this—making healthcare sharing membership costs tax free—but this legislation has not yet passed.
- 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).
FAQ: Do pastors qualify for premium tax credits?
Depending on their income, pastors may qualify for premium tax credits, which lowers the cost of individual health insurance purchased through the ACA marketplace or state exchanges. They may also qualify for Medicaid if their income is less than 400% of the Federal Poverty Level.
However, if a pastor participates in a QSEHRA, he or she must reduce their premium tax credit dollar-for-dollar by the monthly HRA allowance.
This post was originally published on October 8, 2018. It was last updated October 27, 2020.