Small nonprofit organizations face unique challenges in hiring and retaining employees. Because in many cases, nonprofits have limited resources compared to larger organizations, leadership teams must be strategic about allocating compensation and benefit dollars.
This is especially true when offering employees health benefits because the cost of health insurance steadily rises each year. Even among large employers with more capital, the Kaiser Family Foundation (KFF) found1 that 90% of large employers believe the cost of providing health benefits to employees will become unsustainable in the next five to ten years.
Given these pressures, what’s a nonprofit owner to do when choosing a health insurance plan for their employees? This article will guide you through the top four questions every nonprofit owner should ask when making health benefits decisions for their organization.
Find out how health benefits differ for nonprofits with our guide
1. Do we have to offer health insurance?
The first step is determining what your legal obligations are regarding health insurance. In fact, not all businesses are required to offer health insurance. Whether or not you need to provide medical coverage to your employees will depend on your company’s size.
Due to the Affordable Care Act (ACA) and the employer mandate, organizations with 50 or more full-time equivalent employees (FTEs) must offer affordable health coverage that meets minimum essential coverage (MEC) to at least 95% of their full-time employees and their dependents. If they fail to do so, they must pay a penalty.
Companies of this size are known as applicable large employers (ALEs), and they can be any kind of employer, including nonprofit organizations, as long as they have at least 50 FTEs.
However, smaller organizations are different. Businesses with fewer than 50 FTEs aren’t required to offer health insurance benefits to their employees, nor are they subject to the penalty if they don’t provide them.
So if your nonprofit has fewer than 50 FTEs, you don’t have to offer health insurance. However, that doesn't mean you shouldn’t provide health benefits to your employees, as it promotes greater employee retention, tax advantages for you and your employees, improved company morale, and an overall healthier organization.
2. Is offering health benefits worth the investment?
Given the rising costs of group health insurance plans, you may need to ask yourself if offering health benefits through a traditional group plan is worth your investment. After all, KFF2 reports that the average premium for single coverage in 2022 was $7,911 per year and $22,463 per year for those with family coverage.
However, just because you can’t afford to invest in a group health insurance plan doesn’t mean you have to give up on offering health benefits. Several other options, like health reimbursement arrangements (HRAs), allow employers to provide a formal health benefit on a budget.
While offering health benefits is an investment, it’s one that’s proven to be well worth it. According to a PeopleKeep survey, health insurance is by far the most requested employee benefit, with 87% of employees valuing it and 92% of employers offering it.
What’s more, 88% of individuals3 “heavily consider” a company’s health insurance benefit when looking for a new job. So if you’re considering not offering a health benefit to save money, you may miss out on top-notch job candidates.
3. Which health benefit should we choose?
Once you’ve decided to invest in a health benefit, you’re ready to decide which option is best for your organization.
As previously mentioned, selecting a traditional group health insurance plan isn’t the only route nonprofit owners can take. There are also alternative options that may be more affordable and work better for nonprofit organizations of any size. We’ll cover a few of these options that you can offer with PeopleKeep.
Qualified small employer HRA (QSEHRA)
The QSEHRA is an IRS-approved, employer-funded health benefit specifically designed for organizations with fewer than 50 FTEs. Through a QSEHRA, nonprofit owners can reimburse their employees, tax-free, for qualifying medical expenses, including insurance premiums up to an employer-defined monthly allowance amount.
QSEHRAs have maximum contribution limits set by the IRS each year. So when you’re designing your benefit, you can offer as much allowance as you want for single employees and those with a family, as long as it doesn’t exceed the maximum annual limit.
The flexibility and budget-friendly aspects of QSEHRAs make them very desirable to nonprofits. A recent PeopleKeep report found that 56% of nonprofits decided to offer a QSEHRA because they couldn't afford group health insurance, and 25% chose a QSEHRA because they needed a more flexible benefit.
Whether your employees choose to remain uninsured, purchase a plan on the state or federal marketplaces, participate in their spouses’ group medical plan, stay on their parents’ plan, or enroll in Medicare, they can all benefit from a QSEHRA. Reimbursements to employees are free from income tax as long as their health insurance policy meets MEC.
Individual coverage HRA (ICHRA)
The ICHRA is another HRA that allows nonprofit employers to offer tax-free reimbursements on insurance premiums and other qualifying medical expenses. However, unlike a QSEHRA, an ICHRA is for organizations of all sizes.
The ICHRA is only available to employees with an individual health insurance policy. This means that employees covered by a spouse’s or family member's group health plan or an alternative policy, like a healthcare sharing ministry, can't participate in the benefit.
Additionally, nonprofit employers can offer different allowance amounts to employees based on 11 different classes, such as seasonal or salaried employees or employees living in other states, allowing you to customize your benefit even further.
Integrated HRA
If you decide that group health insurance coverage works well for your organization, you can supplement your employees’ group coverage with an integrated HRA, otherwise known as a group coverage HRA (GCHRA).
Integrated HRAs are available to businesses of all sizes that offer a group health insurance policy. Only employees who opt into your company’s group plan can participate in this HRA.
With a GCHRA, your employees can get tax-free reimbursements on the qualifying out-of-pocket medical costs that aren’t fully paid for by the group plan. There are no allowance limits, and, similar to the ICHRA, you can offer different allowance amounts based on seven employee classes.
Because of this flexibility, offering a GCHRA alongside your group health plan makes for an even more attractive health benefit for your employees.
Stipends
Another way you can reimburse your nonprofit employees for their medical expenses is with a health stipend. A health stipend is simply extra money you offer your employees in addition to their regular wages to pay for health insurance and other out-of-pocket healthcare costs. Because stipends are considered additional income, they are subject to income taxes.
Stipends can be given as a one-time lump sum or on a regular basis, such as monthly, quarterly, or annually. If you want to use a reimbursement method, employees submit a request for their medical expenses and are typically reimbursed on their next paycheck.
But since they are less formal and have fewer regulations, unlike HRAs, you can’t ask for proof of health insurance or receipts for incurred medical care. And for organizations with 50 or more FTEs, stipends don’t satisfy the employer mandate.
If you have a big benefits budget, you can offer a wellness stipend alongside a health stipend. While health stipends cover insurance premiums and other related out-of-pocket expenses, employers primarily use wellness stipends to reimburse physical and mental wellness costs, like fitness trackers, gym memberships, exercise equipment, and other items that promote a healthy lifestyle.
Health and wellness stipends can work in conjunction with other health benefits, like group health insurance or HRAs, making them a flexible and complementary addition to your benefits package. Better yet, there are no eligibility requirements or contribution limits with stipends, so nonprofit organizations of any size can design their stipend to meet their needs and budget.
4. How much can we afford to spend on health benefits?
Finally, the last decision you’ll need to make is choosing how much money to invest in your employees’ health benefits. With an HRA or stipend, you can choose your monthly allowance amount, making it completely customizable and financially low-risk.
According to PeopleKeep customer data, employees primarily use their HRA to pay for their individual health insurance premiums. Because of this, it makes sense to set your HRA allowance amount to be at or above the average monthly individual premium cost in your area.
Our recent nonprofit report shows that nonprofit organizations' average monthly QSEHRA allowance in 2022 was $465.55. Depending on your organization’s budget, you can aim to cover a percentage of your employees’ premiums or the entire cost.
While the internal revenue code (IRC) allows organizations to use their HRA to reimburse their employees for more than 200 medical expenses listed in IRS Publication 502, one way to trim your budget is to reduce this list.
Your organization may exclude prescription drugs from reimbursement or make only premiums eligible through your HRA. This would limit your expense liability and save you money.
However, it’s important to remember that employees often get the greatest value from their HRA and stipend when they cover a wide range of potential healthcare needs. You should evaluate your organization’s budget and your employees’ health benefits needs before cutting options out of the benefit. It’s likely that reducing your allowance is the better option.
Conclusion
Ultimately, the best approach in designing a health benefit is creating one that achieves your organization's recruiting and retaining goals, meets the benefits expectations of your employees and works within your organization’s budget. By answering the four questions we’ve listed above, you’ll be on your way to finding a health benefit that meets both your organization’s and your employees’ needs.
This article was originally published on March 31, 2016. It was last updated on June 7, 2023.
- https://www.kff.org/health-reform/press-release/vast-majority-of-large-employers-surveyed-say-broader-government-role-will-be-necessary-to-control-health-costs-and-provide-coverage-survey-finds/
- https://www.kff.org/report-section/ehbs-2022-section-1-cost-of-health-insurance/
- https://www.frac.tl/employee-benefits-study/
