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How nonprofits can offer health insurance

Written by: Chase Charaba
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Published on July 14, 2022.

As healthcare costs rise every year, small and midsize employers sometimes struggle to deliver quality health benefits to their employees. This can be especially true for nonprofit organizations since revenue can vary significantly from month to month.

In fact, in a PeopleKeep survey of nonprofit organization owners, 81% said that cost was one of the most pressing challenges in finding a health plan that fits their needs.

Why traditional group health insurance doesn't work for nonprofits

Moreover, over half of those surveyed said they're very interested in seeing the federal government expand the number of alternatives to group health coverage.

Luckily, there's an alternative to traditional group health insurance plans that many nonprofits have found helpful in offering quality health benefits to their employees: a health reimbursement arrangement (HRA).

In this article, we'll go over what HRAs are, the different types of HRAs available, and why they work for nonprofit organizations.

Get our comprehensive guide on offering an HRA as a nonprofit owner and find health benefit standards for organizations in the U.S.

What is a health reimbursement arrangement (HRA)?

An HRA is an IRS-approved, employer-funded health benefit used to reimburse employees for qualifying out-of-pocket medical expenses and personal health insurance premiums.

Many organizations and nonprofits use HRAs over group health insurance or health stipends because of the tax advantages and budget control that HRAs facilitate compared to an insurance company.

With an HRA, organizations set a monthly allowance for employees. After making healthcare purchases, including insurance premiums, employees submit documentation of their medical expenses to their employer.

From there, you'll review the documents and reimburse employees up to their monthly allowance amount, tax-free, if everything's in order.

There are a few different types of HRAs, each with its own features and requirements that enable nonprofit organizations to deliver meaningful health benefits to employees.

Qualified small employer HRA (QSEHRA)

First up is the qualified small employer HRA (QSEHRA). A QSEHRA is an HRA specifically designed for organizations with fewer than 50 full-time equivalent employees (FTEs).

With a QSEHRA, all reimbursements are free of payroll tax for the organization and its employees. Reimbursements can be free of income tax for employees, too, if the employee has medical coverage through a policy providing minimum essential coverage (MEC).

Individual coverage HRA (ICHRA)

Next, there's the individual coverage HRA (ICHRA). An ICHRA is a health benefit for employers of all sizes. Like a QSEHRA, nonprofits and other groups can use an ICHRA to reimburse employees tax-free for individual health insurance premiums and other medical expenses.

All employers with at least one W-2 employee can offer an ICHRA. This includes businesses, nonprofit organizations, government entities, and religious organizations.

Unlike a QSEHRA, an ICHRA can be offered by organizations with 50 or more full-time employees. You can also use it to satisfy the Affordable Care Act (ACA)'s employer mandate, as long as your employees have individual health insurance coverage that meets MEC.

An ICHRA can be offered as a stand-alone benefit or as another benefits option for your employees who don’t qualify for your group health insurance policy. However, group health insurance and an ICHRA can't be offered together to the same group of employees.

For example, you could offer group health insurance to your full-time employees and an ICHRA to part-time employees. However, you can only offer full-time employees either an ICHRA or group health insurance, not both.

While newer than QSEHRAs, ICHRAs are also growing in popularity. A survey conducted by the Kaiser Family Foundation1 found that 88% of large employers favored ICHRAs as an alternative to group health insurance.

Group coverage HRA (GCHRA)

Finally, there's the group coverage HRA (GCHRA). Often referred to as an integrated HRA, a GCHRA is an employer-funded medical reimbursement plan linked with a group health insurance plan—usually a high-deductible health plan (HDHP).

GCHRAs are only offered to those who participate in an organization's group health insurance plan, as it's a supplement intended to help employees with their deductible costs.

Employees can use their GCHRA allowance to get reimbursed for healthcare costs before their out-of-pocket maximum is met or to get reimbursed for expenses that aren't fully covered by the group plan, such as vision or dental expenses.

Why are HRAs a good choice for nonprofit organizations?

While HRAs are an excellent health benefits solution for organizations of all sizes and types, they have a few special perks that make them an even more attractive choice for nonprofit organizations.

Benefits on a budget

HRAs empower nonprofit owners to offer quality health benefits on a tight budget. Rather than suffering through high costs and annual rate hikes, HRAs allow nonprofit owners to set a specific budget that they can count on month-to-month and year-to-year.

What's more, while nonprofit owners may not be able to offer employees corporate-level salaries, offering a competitive benefit more than makes up for it. Results from Glassdoor's Employment Confidence Survey2 show that four out of five employees would rather have new or additional benefits than a pay raise.

Flexible plans

Another substantial advantage HRAs have for nonprofit organizations is their flexibility. Each employee can use the benefit differently and can even sign up for an individual insurance plan that meets their unique healthcare needs.

Nonprofit organizations typically employ people with a strong dedication to the group's mission. Employees often span several demographics, including age, marital status, insurance status, and even the state they live in. No matter how your team varies, a single HRA can work for all of them as long as they are W-2 employees.

Fast and easy to administer

Finally, HRAs are quick and easy to set up and administer monthly, especially if you utilize an automated software solution like PeopleKeep. With our software services to help you make reimbursements and our award-winning customer support team to answer your questions, you'll only need a few minutes every month to administer your own HRA.

Time-saving tools like those available with PeopleKeep are beneficial for nonprofit directors who often wear many hats, leaving them with little extra time to spend researching and administering employee benefits. In fact, 84% of the nonprofit owners we surveyed found that having a software provider to help administer their benefit was very or extremely important to their organization.

Alternatives to HRAs

While HRAs are an excellent option for providing health benefits to your workers, they may not work for everyone. For example, if you employ independent contractors with Form 1099, they aren't eligible for an HRA. Likewise, international workers can't take advantage of an HRA's tax-free status.

In addition, because HRAs provide tax-free reimbursements for medical expenses, including individual health insurance premiums, employees must account for their HRA allowance and any premium tax credits they receive.

With a QSEHRA, this means reducing tax credits by the amount of your QSEHRA allowance. If you offer an ICHRA to your workers, they'll have to choose between their ICHRA or tax credits if the ICHRA isn't considered affordable.

In these unique situations, a health stipend might be a better option. A health stipend works similar to an HRA, where you can provide a monthly allowance for medical expenses. However, they are taxable for both the employer and the employee.

Health stipends don't come with as many regulations as an HRA, so your employees can use them for various medical costs, including mental health needs and expenses that an HRA may not cover.

Conclusion

HRAs and health stipends are great options for nonprofit organizations struggling with the costs, time requirements, and other limitations of group health plans.

With an HRA, you can control the benefits costs, provide value to employees regardless of your organization's size or budget, and outsource administration requirements to a software provider.

If you're ready to offer health benefits for your nonprofit, PeopleKeep can help! Our HRA and employee stipend administration software makes it easy for organizations like yours to set up and manage their benefits in minutes each month.

Schedule a call with a personalized benefits advisor to see how personalized benefits can work for your nonprofit

This blog article was originally published on March 9, 2016. It was last updated on July 14, 2022.

1. https://www.kff.org/report-section/how-corporate-executives-view-rising-health-care-cost-and-the-role-of-government-findings/

2. https://www.glassdoor.com/blog/ecs-q3-2015/

Originally published on July 14, 2022. Last updated July 14, 2022.
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