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How Nonprofits Can Offer Affordable Health Insurance

June 30, 2020
How nonprofits can offer affordable health insurance in 2017

According to Statista, staff transition (turnover) was the single biggest challenge faced by nonprofits in 2019. When resources are tight, nonprofits can have a hard time finding the funds to cover health benefits for their employees—especially if they limit their options to group health insurance. This is where a health reimbursement arrangement (HRA) can help.

Small nonprofits are less likely to offer health benefits

We know that limited resources make it harder for nonprofits of all sizes to provide health benefits to their employees, but smaller nonprofits in particular have struggled in the face of rising premium costs.

This is problematic when you consider that small nonprofits make up nearly half of all nonprofit employers in the country. According to the US Bureau of Labor Statistics, as of 2017, over half of all nonprofits had fewer than 10 employees and over 80% had fewer than 50. Among nonprofits with fewer than 50 workers, just 47% provide health insurance to their employees.

How HRAs can help nonprofits offer affordable health benefits

With the cost of health insurance rising, how can small nonprofits balance increasing costs against shrinking resources?

One option many nonprofits are exploring is health insurance reimbursement through a Qualified Small Employer HRA (QSEHRA) or an Individual Coverage HRA (ICHRA). Through an HRA, small nonprofits set aside a monthly sum for each employee. The employee then purchases their own health insurance policy, either from a broker or on their state’s marketplace. All payments the nonprofit makes through the HRA are free of payroll tax. For employees, all reimbursements received through the HRA are free of payroll tax and free of income tax, too, if the employee has minimum essential coverage (MEC), On average, HRAs deliver about 35% in savings over taxable stipends and wage increases. This option not only helps businesses cut costs, it makes administration much easier for the nonprofit. For that reason, the ICHRA is especially welcome for nonprofits that operate across multiple states, said Julie Gallion, benefits lead for Nonprofit HR.

“Certain nonprofits are excited about [the QSEHRA]. When a group has employees in different states, it’s very difficult to find carriers who will insure them, or another option for multiple state health insurance," Gallion told us. "These nonprofits don’t have many options. This new opportunity will enable them to offer tax-free benefits.”

Another option is a Group Coverage HRA (GCHRA), which allows a nonprofit to reimburse for deductibles, copays, and other out of pocket expenses. The cost for a group health plan is typically beyond the budget of most nonprofit organizations. With a GCHRA, however, nonprofits can reduce insurance costs by choosing a high deductible plan and then reimbursing employees for a portion of their deductibles, giving them a much lower “effective” deductible.

Conclusion

When nonprofits ask the right questions, they’re more likely to find healthcare solutions that meet their goals. Our research shows that an increasing number of nonprofits recognize the importance of keeping health benefits while looking for ways to manage their health insurance costs and make benefits cost-effective. The HRA has emerged as an option that delivers the benefits nonprofit employees want while consuming a smaller share of resources compared to traditional group health insurance.

For more information, check out Health Benefits for Nonprofit Organizations and How to explain an HRA to your nonprofit's board of directors.

Has your nonprofit found a way to lower your health insurance cost? Let us know in the comments below.

We surveyed more than 100 nonprofit groups
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