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The best way for nonprofits to offer health insurance

Written by: Gabrielle Smith
July 7, 2021 at 8:31 AM

As healthcare costs rise every year, small employers often struggle to deliver quality health benefits to employees. This is especially true for nonprofit organizations, since revenue can vary greatly 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 benefit that fits their needs.

Why traditional group health insurance doesn't work for nonprofits

What’s more, over half of those surveyed said they’re very interested in seeing the federal government expand the number of alternatives to group health insurance.

Luckily, there is an alternative to traditional group health insurance plans that many nonprofits have found useful in helping them offer a quality health benefit to their employees: a health reimbursement arrangement (HRA).

In this article, we’ll go over what HRAs are, the different types of HRAs, 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 small organizations and nonprofits use HRAs over group health insurance or health stipends because of the tax advantages and budget control that HRAs facilitate.

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

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

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

Qualified small employer HRA

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

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 is covered by a policy providing minimum essential coverage (MEC).

Overall, leaders of nonprofit organizations are highly satisfied with QSEHRAs. In fact, 93% said they were either very likely or extremely likely to recommend a QSEHRA as a health benefit to other nonprofit organizations.

These levels of satisfaction were consistent across participants in the survey, regardless of their health benefits challenges, and were particularly high among groups with unpredictable revenue streams (96%) and groups with a diverse employee set (94%).

Learn how more than 200 nonprofit owners used their QSEHRA last year

Individual coverage HRA

Next, there’s the individual coverage HRA (ICHRA). An ICHRA is a health benefit for employers of all sizes. Just 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.

An ICHRA can be offered as a stand-alone benefit or alongside a 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 Foundation found that 88% of large employers favored ICHRAs as an alternative to group health insurance.

Group coverage HRA

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 plan.

GCHRAs are only offered to those who participate in an organization’s group health insurance plan, as it’s a supplement 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 covered by the group plan.

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 a quality health benefit 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. In fact, results from Glassdoor’s Employment Confidence Survey show that 4 out of 5 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, and employees often span several demographics including age, marital status, insurance status, and even the state they’re living in. No matter how your team varies, a single HRA can work for all of them.

Fast and easy to administer

Finally, HRAs are quick and easy to set up and administer every month, 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 especially helpful for nonprofit directors who often find themselves wearing many hats, leaving them with little extra time to spend on 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 either very or extremely important to their organization.

Conclusion

HRAs are a great option 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. As you consider your options for health benefits, your peers in the nonprofit space have one message for you—HRAs work!

This article was originally published on March 9, 2016. It was last updated July 7, 2021.

Topics: Health Benefits, Health Insurance, Nonprofit

Additional Resources

Health benefits are different for nonprofits—find out how in our guide.
Get 11 insider tips on how small employers can retain employees.

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