Nonprofit organizations face important decisions about employee health benefits. Executive teams know the importance of health benefits for recruiting and retaining key talent - and yet costs remain a significant challenge.
According to the PPI Benefit Solutions 2015 Nonprofit Employee Benefits Survey, the number one objective when selecting benefit plans continues to be “controlling costs,” with 97 percent of participants rating it “very” to “extremely” important. Additionally, cost to employees is the second most challenging factor, and has been a rising concern since 2009.
For nonprofit leaders, the pressure to offer or maintain competitive benefits while meeting budget constraints leaves many nonprofits evaluating the quality, cost, and value of their health benefits annually.
This article outlines the top five health insurance options for nonprofits in 2016 - and which options may help alleviate cost challenges for the organization and employees.
Nonprofit Health Insurance Options
1. Employer-funded Individual Health Insurance
The first option is a relatively simple approach - reimburse employees for individual health insurance premiums instead of offering a group health insurance policy.
With this option, employees receive an employer-funded healthcare allowance, purchase their own individual health insurance coverage, and are reimbursed by the non-profit - up to the amount in their allowance balance.
To go this route, nonprofits generally work with a healthcare reimbursement software provider. A software provider will help the nonprofit set up a compliant reimbursement plan, and provide an easy-to-use administration platform to manage the allowances and reimbursements.
Bottom line: For many small nonprofits, this is the most cost-effective solution because the organization can contribute any amount they desire, individual health insurance costs significantly less - on average - compared to small group plans, and administrative time is minimal.
2. Private Small Group Plan
The second option is one nonprofits are likely most familiar with - purchase a group health insurance policy to cover eligible employees and dependents. There are several types of group health insurance policies to choose from, and a licensed broker can help the organization navigate different carriers, types of plans, coverage levels, and costs.
One of the challenges of group health insurance policies, especially for smaller nonprofit organizations, is the cost and contribution structure. With group health insurance, the organization is generally required to contribute a minimum percentage toward the premium costs and costs typically increase each year at plan renewal time.
Bottom line: Once a go-to for quality health benefits, group health insurance policies are becoming too expensive for many nonprofit employers, board of directors, and employees.
3. SHOP Marketplace Group Plan
The SHOP Marketplaces are state- or federally-run exchanges offering small employers group health insurance coverage. A SHOP plan could be a good coverage option for employers with 50 or fewer employees, if they can meet certain requirements. For example, in Massachusetts employers participating in the SHOP must contribute at least 50 percent of the premium amount, employers with 1-5 employees must have 100 percent of the employees enrolled, and employers with 6-50 employees must have at least 75 percent enrolled.
Additionally, for eligible small nonprofits, the SHOP Marketplace gives access to the small business tax credits.
To go this route, nonprofits should work with a licensed broker to explore plan options, evaluate eligibility for a tax credit, and purchase a benefit plan.
Bottom line: SHOP plans are similar to a private group health insurance plan - the main difference being they offer access to the small business tax credits and may have more flexible participation or contribution requirements.
4. Private Health Exchange
With a private exchange the nonprofit gives employees a set contribution to use towards a menu of plan options. The plan options can be individual- or group-based. Private exchanges are a type of “defined contribution” strategy.
One challenge for smaller nonprofits is the administration of a private health exchange. To evaluate if this is a viable or cost-effective solution, work with a broker or private health exchange provider.
Bottom line: While the idea of a private health exchange sounds promising, small nonprofits likely do not have the administrative bandwidth to implement. Instead, nonprofits are adopting employer-funded individual health insurance - a similar concept, but with easier administration.
The final health insurance option for nonprofits is to join a co-op or association for health insurance. The basic concept is the co-op exists to increase buying power and spread the risk among a larger group.
Bottom line: Each co-op is structured differently, so the co-op may offer better insurance rates than a group policy or SHOP policy depending on regional insurance underwriting laws and the co-op itself.
In a sea of health insurance strategies, most can be boiled down to these five options: individual health insurance reimbursement, a private group health insurance plan, a SHOP Marketplace plan, a private exchange, or a co-op. As nonprofits aim to minimize cost while also offering benefits that meet employee expectations, more and more small and medium sized nonprofits are adopting individual health insurance reimbursement.
What nonprofit health insurance options would you add to our list? What questions does your nonprofit have? Leave a question, comment, or idea below.