Jane Dotson
Nonprofits have various options for offering health insurance to their employees. While it is not mandatory for small nonprofits with fewer than 50 employees to provide health insurance, doing so can bring several advantages. These include improved employee satisfaction and retention, enhanced organizational culture, and a demonstration of the value placed on employees' physical and mental well-being. Nonprofits can explore alternatives such as health reimbursement arrangements (HRAs), health stipends, self-funded group plans, or joining a Professional Employer Organization (PEO) to provide healthcare benefits to their employees.
| Characteristics | Values |
|---|---|
| Mandatory for nonprofits with more than 50 full-time employees | Yes, under the Affordable Care Act (ACA) |
| Penalty for not providing a minimum level of insurance coverage | Yes |
| Average annual cost for a single employee | $5,179 |
| Average annual cost for family coverage | $12,591 |
| Percentage of premium paid by employers for single employees | 83% |
| Percentage of premium paid by employers for family coverage | 72% |
| Option to reimburse employees for individual health insurance premiums | Yes, through ICHRA or QSEHRA |
| Option to provide health stipends | Yes |
| Option to provide group health insurance | Yes |
| Option to join a Professional Employer Organization (PEO) | Yes |
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What You'll Learn
Nonprofit employee medical insurance options
Nonprofits have various options when it comes to offering health insurance to their employees. The choice to offer health insurance is discretionary for small nonprofits with fewer than 50 employees. However, for larger nonprofits, the Affordable Care Act (ACA) mandates a minimum level of medical insurance offering or a penalty.
Small nonprofits can choose from several options, including small group health insurance plans, self-funded group plans, health reimbursement arrangements (HRAs), and health stipends. Small group health insurance plans can be challenging for small nonprofits due to their cost, eligibility requirements, and lack of customization. Self-funded group plans may also be risky for small nonprofits, as they are responsible for paying employees' medical claims.
Health reimbursement arrangements (HRAs) and health stipends are popular alternatives to group plans. HRAs are IRS-approved structures that allow nonprofits to reimburse employees for qualifying out-of-pocket medical costs and individual health insurance premiums. The ICHRA, a newer version of the HRA, offers more flexibility and is available to nonprofits of all sizes. HRAs provide employees with the ability to choose their preferred medical providers and plans that meet their unique needs. Additionally, they are easy to set up and manage, especially with the help of administration software. Health stipends offer even more flexibility, as they have fewer regulations, but they are not considered formal benefits and cannot be used to meet employer mandate requirements.
For larger nonprofits with 50 or more employees, group health insurance plans become a more viable option. These plans can be obtained through various avenues, such as Professional Employer Organizations (PEOs) like JustWorks and Trinet, which offer benefits and HR services to small businesses and nonprofits. Additionally, local chambers of commerce and organizations like Costco provide group health plans to business members. Larger nonprofits can also explore partnerships with organizations like The Center for Nonprofit Advancement and Nonstop, which offer comprehensive coverage, including dental, vision, and life insurance options.
While the financial burden of offering health insurance can be significant, it is essential to consider the potential advantages. Providing health benefits can enhance employee recruitment and retention, boost job satisfaction, and foster a healthy organizational culture. Additionally, it demonstrates the value placed on employees' physical and mental well-being, improving overall company morale.
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Advantages of offering health insurance
Offering health insurance to employees in nonprofit organisations has several advantages. Firstly, it demonstrates the value placed on employees and their physical and mental well-being, improving company morale and fostering a sense of care. This can be especially impactful if the salaries offered are lower than those in for-profit organisations, making health insurance a valuable compensatory benefit.
Secondly, providing health insurance can help attract and retain talented employees. A competitive benefits package, including health insurance, is often a deciding factor for potential employees when choosing an employer. According to surveys, many employees value health benefits over salary increases, with 92% of workers valuing company-sponsored health benefits and 79% preferring new or additional benefits over a pay raise. Therefore, offering health insurance can be a powerful tool for nonprofits to recruit and retain a dedicated workforce.
Thirdly, health insurance can be offered in a flexible and cost-effective manner through Health Reimbursement Arrangements (HRAs) or health stipends. HRAs, which are IRS-approved, allow employees to choose individual health insurance plans that meet their unique needs, providing access to their preferred medical services regardless of location. Additionally, HRAs offer nonprofits the ability to set a specific monthly or annual budget, making them an affordable and manageable option. Health stipends also provide flexibility, as they are not bound by strict regulations, allowing nonprofits to offer allowances and cover additional benefits like mental health services.
Lastly, for larger nonprofits with over 50 full-time employees, offering health insurance is mandatory under the Affordable Care Act (ACA) to avoid penalties. Nonprofits in this category must offer a minimum level of medical insurance coverage to comply with the law. Therefore, providing health insurance becomes not just an advantage but a necessary component of their employee benefits package.
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Affordable Care Act (ACA) requirements
The Affordable Care Act (ACA) has several requirements that employers must adhere to. Firstly, it is important to note that the ACA defines a small employer as one with fewer than 50 full-time employees, and an applicable large employer as one with 50 or more full-time employees. This distinction is crucial because the requirements for small employers and large employers differ under the ACA.
For small employers, generally those with fewer than 50 full-time employees, the ACA does not require them to offer health insurance coverage to their employees. However, if they choose to do so, they must comply with certain specifications outlined by the ACA. Small employers may also be eligible for various benefits, such as tax credits, to help offset the cost of providing coverage. For example, they can enroll in the Small Business Health Options Program (SHOP) to lower premium costs and qualify for the Small Business Health Care Tax Credit. Additionally, small employers must provide their employees with a standard "Summary of Benefits and Coverage" (SBC) form, explaining the health plan's coverage and costs.
On the other hand, applicable large employers, those with 50 or more full-time employees, are subject to the "Employer Mandate" or "Play or Pay" mandate. This mandate requires them to offer health insurance coverage to at least 95% of their full-time employees or pay a penalty. The coverage must be affordable, with employee contributions for employee-only coverage not exceeding a certain percentage of an employee's household income, adjusted annually by the IRS. For instance, in 2024, coverage is considered affordable if employee contributions do not exceed 8.39% of household income, while in 2025, it should not exceed 9.02%. Applicable large employers are also required to file an annual report detailing compliance with the mandate, including information on employees who accepted coverage and the associated costs.
Furthermore, the ACA prohibits employers from directly reimbursing employees for the cost of individual market health insurance. However, as of January 1, 2020, employers can offer an individual coverage health reimbursement arrangement (ICHRA), allowing them to reimburse employees tax-free for health insurance purchased on the open market. Additionally, the ACA includes "shared responsibility" provisions, which apply to applicable large employers. These provisions ensure that employers provide specific information about the Marketplace to their employees, regardless of whether they offer health insurance or not.
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Cost implications and savings
The cost of offering health insurance to employees varies depending on the size of the nonprofit and the number of employees. On average, employers pay $5,179 annually (83% of the premium) to cover a single employee and $12,591 annually (72% of the premium) to cover a family, according to PeopleKeep. These costs can be reduced by picking a policy with a high deductible, where nonprofits give employees a tax-free allowance for out-of-pocket medical expenses and premiums. This allows nonprofits to control and predict costs, but it may not be an option for smaller nonprofits with limited resources.
Small nonprofits with fewer than 50 employees can choose whether or not to offer health insurance. One option for small nonprofits is to use a health reimbursement arrangement (HRA), which is an IRS-approved, employer-funded benefit that reimburses employees for qualifying out-of-pocket medical costs. HRAs offer flexibility, allowing employees to choose their own medical plans and services, and they are quick and easy to set up and manage, especially with administration software. However, the employer is responsible for paying the employee's medical claims, which may be a financial burden for small nonprofits.
Another option for small nonprofits is to join a Professional Employer Organization (PEO), which acts as the employer of record and handles benefits, payroll, and HR. PEOs allow small nonprofits to access pricing normally available to larger employers and may offer nonprofit discounts. Alternatively, nonprofits can use a payroll and benefits platform like Gusto, which offers HR services and health plan consultation for a small monthly administrative fee.
For larger nonprofits with 50 or more employees, the Affordable Care Act (ACA) mandates a minimum level of medical insurance coverage to avoid penalties. To comply with the ACA, the benefit must be affordable, and workers must have a qualifying form of individual health insurance coverage. Large nonprofits can use the ICHRA to reimburse employees tax-free for individual health insurance premiums and medical expenses, with no maximum contribution limits.
While the cost of offering health insurance can be significant, it is important to consider the potential savings and benefits. Offering health insurance can improve employee satisfaction and retention, reducing the cost of replacing workers who leave in search of better benefits packages. Additionally, health insurance can be used as a recruiting tool, attracting talented employees who may be willing to accept lower salaries in exchange for comprehensive benefits.
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Administration and management
If your nonprofit falls into the small business category, which includes two-thirds of all nonprofits, you have several options to explore. One popular choice is a small group health insurance plan. However, this option can be challenging due to its cost, eligibility requirements, and lack of customization. An alternative is to establish a self-funded group plan, but this may not be feasible for small nonprofits as the organization is responsible for paying employees' medical claims.
Another option is to use Health Reimbursement Arrangements (HRAs), such as the QSEHRA or the newer and more flexible ICHRA. HRAs allow employees to buy medical expenses and individual health insurance plans that meet their unique needs, and they can be set up and managed easily with administration software. With an HRA, employees can access their preferred doctors, hospitals, and services, and nonprofits can provide quality coverage without a high financial burden. Additionally, HRAs have fewer regulations, allowing more flexibility in the amount of allowance and the ability to cover additional benefits like mental health services.
Health stipends are another alternative, where employees receive a stipend to purchase an individual plan. Stipends provide similar flexibility to HRAs, but it's important to note that they are not considered a formal benefit, so they cannot be used to meet the employer mandate's requirements.
To bring down the cost of group health insurance, nonprofits can pick a policy with a high deductible and provide a tax-free allowance for employees' out-of-pocket medical expenses. This approach allows employees to choose their coverage while giving nonprofits better cost control and predictability. Additionally, nonprofits with fewer than 50 employees may qualify to purchase state- or federally-run group health insurance through SHOP Marketplaces, and those with fewer than 25 employees may be eligible for a Small Business Health Care Tax Credit.
Other options for managing health insurance include joining a Professional Employer Organization (PEO) like JustWorks, which handles benefits, payroll, and HR services, or using a platform like Gusto, which offers consultation and administration services for health plans with no minimum number of employees.
It's important to consult with licensed health agents and tax professionals to determine the best approach for your organization, as the health insurance landscape is constantly evolving.
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Frequently asked questions
According to the Affordable Care Act (ACA), nonprofits with more than 50 full-time employees must offer a minimum level of medical insurance coverage or pay a penalty. Small nonprofits with fewer than 50 employees can choose whether or not to offer health insurance.
Offering medical insurance can improve company morale and help with employee retention and recruitment. It demonstrates the value you place on your employees and their physical and mental well-being.
There are a few options for nonprofits to provide health benefits, including small group health insurance, self-funded group plans, health reimbursement arrangements (HRAs), and health stipends. Nonprofits can also use the ICHRA to reimburse employees tax-free for individual health insurance premiums and medical expenses.
On average, employers pay $5,179 annually (83% of the premium) to cover a single employee and $12,591 annually (72% of the premium) to cover a family. However, the cost of replacing workers who leave in search of better benefits packages can be much higher.
Some options include joining a Professional Employer Organization (PEO), such as JustWorks or Trinet, or using a platform like Gusto, which offers HR services and health plan consultation. VitalHealth is another option, but it is only available in the District of Columbia, Maryland, and Virginia.
