All businesses face challenges, but nonprofits often struggle with different obstacles compared to their for-profit counterparts. Among the most pressing challenges facing nonprofits today are a lack of resources, creation of a sustainable business model, and donor retention.
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. As we’ve discussed before, a 2013 Department of Health and Human Services estimate showed that almost half of the 500,000 nonprofits in the United States had fewer than 10 employees, and two-thirds had fewer than 50. Among nonprofits with fewer than 50 workers, just 47 percent provided health insurance to their employees.
How the QSEHRA 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 health insurance reimbursement, small nonprofits set aside a monthly sum for each employee. The employee then purchases their own health insurance policy and requests reimbursement for the premium cost, which the nonprofit pays from the employee's monthly sum.
Nonprofits that use health insurance reimbursement typically give $565 per employee per month, reimbursing each employee an average $402 per month, according to our most recent analysis of health insurance reimbursement. By family status, nonprofits that use this option save 32 percent on single employees and 57 percent on employees with a family when compared with group health insurance
The approach is so popular with nonprofits, nonprofits accounted for 9 percent of businesses in the sample of our analysis.
And as of 2017, there is a new option for small nonprofits: the qualified small employer health reimbursement arrangement (QSEHRA). The QSEHRA works much the same as health insurance reimbursement, but also allows nonprofits to reimburse employees for qualified medical expenses.
This benefit not only helps businesses cut costs, it makes administration much easier for the nonprofit. For that reason, the QSEHRA 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.”
For more information, check out "Is the QSEHRA a good fit for nonprofits?" and "How to explain an HRA to your nonprofit's board of directors."
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 QSEHRA has emerged as an option that delivers the benefits nonprofit employees want while consuming a smaller share of resources compared to group health insurance and other choices.
Has your nonprofit found a way to lower your health insurance cost? Let us know in the comments below.