Jane Dotson
Non-profit organisations face unique challenges when it comes to hiring and retaining talented employees, as they often have limited resources compared to for-profit businesses. Offering health insurance benefits to employees has become a powerful lure for non-profits seeking to hire the best candidates. While it is not a federal requirement for all businesses to offer health insurance, organisations with 50 or more full-time employees must offer affordable health coverage to at least 95% of their full-time employees and their dependents. Non-profits can offer health benefits to their employees in various ways, including small group health insurance plans, self-funded group plans, and health reimbursement arrangements (HRAs). HRAs are a flexible and cost-effective option for non-profits, allowing them to set a specific monthly or annual budget for healthcare costs.
| Characteristics | Values |
|---|---|
| Medical insurance options for non-profits | Small group health insurance, self-funded group plans, health reimbursement arrangements (HRAs), health savings accounts (HSAs), level-funded insurance plans, VitalHealth, Kaiser Permanente DHMO Plus Plan |
| Advantages of HRAs | Flexibility, affordability, quality coverage, no minimum contribution caps, tax-free reimbursements for employees, ability to attract and retain talented employees |
| Challenges for non-profits | Limited budget, navigating complex regulations, variability in employee needs, rising cost of offering health insurance |
| Legal requirements | 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; non-profits with fewer than 50 employees may qualify for Small Business Health Care Tax Credit |
| Tax exemptions | Qualified Nonprofit Health Insurance Issuers (QNHIIs) that have received a loan or grant under the Centers for Medicare and Medicaid Services (CMS) CO-OP program are tax-exempt |
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What You'll Learn
Non-profit health insurance options
Non-profit health insurance, also known as co-op health insurance, is a model where the company's purpose is to provide health insurance to its members rather than increasing the wealth of its owners or shareholders. Non-profit insurance companies offer strong policy options that meet federal standards, and may also provide additional benefits such as assistance with medication costs, mental health services, or vision care. Members can typically access a wide range of providers without having to pay out-of-network costs.
Non-profit health insurance networks are more focused on primary and preventative care than other types of insurance providers. They usually require you to pay a monthly premium to remain covered under their policies, and you will likely have out-of-pocket expenses like deductibles, copays, and coinsurance. Non-profit healthcare companies can follow different models, including co-op, mutual society, or charitable health coverage models.
Co-op health insurance is a popular model for non-profit health insurance. A co-op is a member-owned, democratically controlled organization that negotiates with healthcare providers for lower rates and services for its members. While co-ops typically offer limited provider networks, they provide more affordable premiums and additional benefits such as telemedicine or vision services. Mutual society models are another popular option, where members contribute to a mutual fund to pay for care.
Non-profits have various options for offering health benefits to their employees. Small group health insurance is one option, but it can be challenging due to its cost, eligibility requirements, and one-size-fits-all model. Self-funded group plans are another possibility, but they place the financial burden of paying employees' medical claims on the business, which can be risky for small organizations.
Popular alternatives to group plans include health reimbursement arrangements (HRAs) and health stipends. An HRA is an IRS-approved, employer-funded benefit that reimburses employees for qualifying out-of-pocket medical costs, including individual health insurance premiums. HRAs offer flexibility, allowing employees to choose medical expenses and individual health plans that meet their unique needs. They are also quick and easy to set up and manage, especially with administration software.
Another option for non-profits is the individual coverage HRA (ICHRA), which reimburses employees tax-free for individual health insurance premiums and other medical expenses. ICHRAs are more flexible than QSEHRAs, and they are available to organizations of all sizes. Applicable large employers (ALEs) can use ICHRAs to satisfy the Affordable Care Act (ACA) employer mandate.
One example of a non-profit health insurance provider is VitalHealth, offered by the Center for Nonprofit Advancement. VitalHealth provides medical, dental, vision, and life insurance plans with the goal of promoting health equity within organizations. Their plans eliminate out-of-pocket expenses, ensuring employees have access to quality, affordable healthcare.
Non-profit insurance plans can provide comprehensive coverage, including primary and preventative care, as well as additional services such as occupational and physical therapy, acupuncture, chiropractic care, and infertility treatments. They may also offer low-cost dental and vision plans with nationwide coverage, as well as basic life insurance without the need for medical exams or questionnaires.
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Advantages of health reimbursement arrangements (HRAs)
Health Reimbursement Arrangements (HRAs) are an attractive option for employers to consider when determining employee benefits. They are especially useful when trying to attract and retain top talent. Here are some advantages of HRAs:
Cost-effective and flexible
For small businesses and non-profits, offering health benefits to employees can be costly and challenging. HRAs provide a cost-controlled health benefit that is more inclusive and tailored to employees than a traditional group health plan. They can be offered in lieu of, or in combination with, an employer-sponsored medical plan. This flexibility allows employers to choose an HRA that suits their size and budget.
Tax advantages
HRAs provide tax advantages for both employers and employees. Employer contributions to an HRA are excluded from an employee's gross income and wages, meaning they are not subject to income or payroll taxes. Reimbursements for qualified medical expenses are also tax-free.
Employee satisfaction
According to PeopleKeep's 2024 Employee Benefits Survey, 92% of employees value health benefits. By offering an HRA, employers can ensure that their employees are reimbursed for qualified medical expenses, including health insurance premiums, vision and dental insurance premiums, and out-of-pocket expenses. This can lead to higher employee satisfaction and retention.
Regulatory exceptions
While stand-alone HRAs were previously prohibited, certain small employers with fewer than 50 full-time workers were permitted to offer "qualified small employer health reimbursement arrangements" (QSEHRAs) beginning in 2017. In 2019, the Trump Administration removed the prohibition on integrating HRAs with individual market health coverage, allowing for even more flexibility in how employers offer health benefits to their employees.
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Self-funded and level-funded insurance plans
Self-funded insurance plans, also known as self-insured plans, are typically used by larger corporations with the financial resources to absorb unpredictable medical claims. The employer assumes the financial risk and pays the medical claims that arise. In this setup, the employer pays a fixed monthly amount for administration fees and stop-loss insurance coverage, but the monthly claims costs are variable. Self-funded plans offer significant advantages in terms of cost control and customization but carry a higher degree of financial risk. They are not subject to state insurance regulations and premium taxes, which can result in additional savings and fewer regulatory burdens. However, they come with complex administrative responsibilities, including claims processing, regulatory compliance, and reporting.
Fully-funded insurance plans, also known as traditional health insurance plans, are the most common option for small businesses. The employer purchases a group health plan from an employee benefits broker or a health insurance company, and the insurance company assumes the risk and covers the claims. The premium rates are fixed for a year, based on the number of employees enrolled in the plan each month. While this option offers less control over the plan design, it provides predictability in terms of monthly costs.
Level-funded insurance plans are a hybrid of self-funded and fully-funded options, combining the predictability of fully-funded plans with the cost-saving potential and flexibility of self-funded plans. The employer pays a set monthly fee to cover administrative costs, stop-loss coverage, and claims. If the claims costs are lower than the fixed monthly amount, the employer may be eligible for a refund. Level-funded plans offer greater value to small businesses by ensuring high-quality care at a lower cost. They provide employers with better budgeting capabilities and smoother cash flow management, as they are protected from the impact of high claims at the beginning of the year.
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Tax exemptions for non-profits
Non-profit organizations can offer health insurance to their employees in several ways. One option is small group health insurance, but this can be challenging due to its cost, eligibility requirements, and one-size-fits-all model. Another option is for employers to establish self-funded group plans, but this may be too risky for non-profits as they are responsible for paying employees' medical claims. Popular alternatives to group plans include health reimbursement arrangements (HRAs) and health stipends. HRAs are IRS-approved and allow nonprofits to reimburse employees for qualifying out-of-pocket medical costs and individual health insurance premiums. They are flexible, cost-effective, and customizable, making them a great option for nonprofits on a tight budget.
Now, onto tax exemptions for non-profits. Nonprofit organizations are typically exempt from paying federal corporate income tax on income generated from activities related to their purpose. This is known as tax-exempt status. However, they must still pay federal corporate income tax on any income unrelated to their tax-exempt purposes, known as unrelated business income (UBI). While most nonprofits are tax-exempt, there are stringent requirements that must be met, and they remain subject to other taxes, including federal payroll taxes, state and local unemployment taxes, real estate taxes, and personal property tax.
To be tax-exempt under Section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes, and none of its earnings may benefit any private shareholder or individual. These organizations are commonly referred to as charitable organizations and include churches and religious organizations. They are restricted in their political and legislative lobbying activities and may not participate in any campaign activity for or against political candidates. Additionally, they are eligible to receive tax-deductible contributions.
Other types of organizations that may qualify for tax exemption under subsections other than 501(c)(3) include social welfare organizations, civic leagues, social clubs, labor organizations, and business leagues. These organizations contribute to the welfare of society and are often exempt from federal income tax.
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Affordable health insurance options
Health insurance can be costly, but there are a few options for those seeking affordable coverage. Firstly, it is important to explore the health insurance marketplace, which offers a range of plans with varying coverage areas. The Affordable Care Act (Obamacare) provides an opportunity to shop for insurance through the ACA Marketplace with potential access to federally-funded premium subsidies and cost-sharing reductions, depending on your income and circumstances. Short-term health plans are also available for those who need temporary coverage.
Non-profit organisations often face challenges in providing health insurance to their employees, but there are options available to them. One popular choice is a Health Reimbursement Arrangement (HRA), which allows non-profits to reimburse employees for qualifying out-of-pocket medical costs and individual health insurance premiums. This option provides flexibility and quality coverage without the high costs associated with traditional group health insurance. The Individual Coverage HRA (ICHRA) is a newer, more flexible version of the HRA, allowing employees to access their preferred healthcare services.
Additionally, specific programs cater specifically to non-profits, such as VitalHealth, which offers medical, dental, vision, and life insurance plans with no out-of-pocket expenses. The Kaiser Permanente DHMO Plus Plan is another example, providing comprehensive coverage, including therapy, acupuncture, and healthy lifestyle programs, with low-cost dental and vision plans.
Finally, for those in South Dakota, the state's ACA Marketplace provides access to health insurance products from three private insurers, with potential eligibility for financial assistance through premium subsidies and cost-sharing reductions, depending on income and plan selection.
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Frequently asked questions
Offering medical insurance is a powerful lure for hiring the best and brightest candidates. Surveys have shown that employees are willing to take a pay cut for a quality benefits package. It is also a top contributor to job satisfaction and retention.
Health Reimbursement Arrangements (HRAs) are a good option for non-profits on a tight budget. With HRAs, the employer pays a portion of their employees' healthcare costs directly, offering flexibility in determining the contribution. Other options include self-funded plans, level-funded insurance plans, and Small Business Health Options Program (SHOP) marketplaces.
Popular health insurance plans for non-profits include VitalHealth, which offers medical, dental, vision, and life insurance plans, and Sana, which offers customizable and flexible plans.
Yes, under Section 501(c)(29) of the revenue code, Qualified Nonprofit Health Insurance Issuers (QNHIIs) that have received a loan or grant under the Centers for Medicare and Medicaid Services (CMS) CO-OP program receive a tax exemption. Additionally, nonprofits with fewer than 25 employees can get a 35% tax credit, while for-profit small businesses in a similar position can get a 50% tax credit.
