Small nonprofit organizations face unique challenges in hiring and retaining employees. With limited resources, leadership teams must be strategic about how to allocate compensation and benefit dollars.
This is especially true when it comes to offering health benefits to employees, with the cost of group plans steadily rising each year. Even among large employers with more capital, the Kaiser Family Foundation (KFF) finds that the vast majority of large employers believe the cost of providing health benefits to employees will become unsustainable in the next 5 to 10 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 three questions every nonprofit owner should ask when making health benefits decisions for their organization.
1. Is offering health benefits worth the investment?
First off, 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, KFF finds that family premiums have reached $21,342 in 2020 (up 55% since 2010) and increased at a rate at least twice that of both wages (27%) and inflation (19%).
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 all together. There are a number of other options, including health reimbursement arrangements (HRAs), that allow employers to offer a formal health benefit on a budget. (More on those options in the next section).
While offering health benefits is an investment, it’s one that’s proven to be well worth it. The Society for Human Resource Management has found that healthcare has consistently ranked as the top most requested benefit by U.S. employees.
What’s more, more than half of U.S. adults with employer-sponsored health benefits say that liking their health coverage is a key factor in deciding whether or not they would stay at their current job.
2. Which health insurance strategy should we choose?
Once you’ve decided to make the investment in health benefits, you’re ready to decide which health insurance strategy is best for your organization. As previously mentioned, the traditional group health insurance option isn’t the only route available to nonprofit owners. PeopleKeep offers three types of HRAs that work well for nonprofit organizations both big and small.
Qualified small employer HRA (QSEHRA)
The QSEHRA is an HRA that’s specifically designed for organizations with fewer than 50 full-time employees. Through a QSEHRA, nonprofit owners can reimburse their employees, tax-free, for qualifying medical expenses and insurance premiums up to a monthly allowance amount that you set.
Whether your employees choose to remain uninsured, purchase a plan on the state or federal marketplaces, participate in their spouses’ group health plan, stay on their parents’ plan, or enroll in Medicare, they can all benefit from a QSEHRA.
Individual coverage HRA (ICHRA)
The ICHRA is another HRA that allows nonprofit owners to offer tax-free reimbursements on qualifying medical expenses and insurance premiums. However, unlike a QSEHRA, an ICHRA can be offered by organizations of all sizes.
What’s more, employers can also choose to offer different allowance amounts to employees of different classes, such as your seasonal or salaried employees, or employees living in different states.
Group coverage HRA (GCHRA)
If you decide that a traditional group health insurance plan works well for your organization, you can supplement your employees’ group coverage with a GCHRA, often called an integrated HRA.
With a GCHRA, your employees can get tax-free reimbursements on the qualifying out-of-pocket costs that aren’t fully paid for by the group plan. Because of this, offering a GCHRA alongside your group plan makes for an even more attractive health benefit for your employees.
3. 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, you get to choose your own allowance amount, making for a completely customized plan that works for your budget.
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 budget your HRA allowance amount for the average cost of a monthly premium in your area.
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 over 200 medical expenses listed in IRS Publication 502, one way to trim your budget is to reduce this list.
Your organization may choose to exclude prescription drugs from reimbursement or to make only premiums eligible through your HRA. This would limit your expense liability and save money.
However, it’s important to remember that employees often get the greatest value from their HRA when they cover a variety of potential healthcare needs. You should evaluate your organization’s budget along with your employees’ health benefits needs before cutting options out of the benefit. It’s likely that reducing your allowances is the better option.
Ultimately, the best health insurance approach is 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 these three questions, you’ll be well on your way to finding a health insurance option that meets both your organization’s and your employees’ needs.
This article was originally published March 31, 2016. It was last updated June 28, 2021.