The four best health insurance options for solo pastors

For a big church with several pastors, responsibilities are often shared. However, solo pastors at smaller churches often carry the weight of all responsibilities on their own. For that reason, it's not uncommon to see exhaustion and burnout among these religious leaders. A health benefit is necessary to care for your pastor's well-being.

While offering health benefits can be costly for your congregation, it helps your pastor stay healthy and focused on ministering for the long term. You have a few options if you're looking for a way to cover your pastor's medical expenses.

In this article, we'll go over four of the most effective ways churches can offer a health benefit to their solo pastor.

1. Group health insurance

The traditional route most organizations take is to purchase a group health plan from an insurance company. If your religious organization has more than one eligible employee, you can apply for group health insurance in any state. Some states also allow you to apply for group health insurance even if your solo pastor is the only worker.

But given the rising cost of group health insurance, this isn't always the best option for churches, especially the smaller ones. According to the Kaiser Family Foundation¹ (KFF), the average annual premiums for 2022 were $7,911 for single and $22,463 for family coverage.

Additionally, you may have to comply with a participation rate, and the available health insurance plans might not work for all employees.

2. Health insurance stipends

Instead of traditional group health insurance, churches can offer a health insurance stipend. This is a set amount of money that your pastors and church staff can use for out-of-pocket expenses for medical care and individual health insurance premiums.

The church sets the monthly allowance, and your pastor can choose the insurance policy that best matches their own needs. They can find their own affordable health insurance policy through the federal marketplace or a private exchange.

While this option is probably the easiest, there are some disadvantages. The biggest disadvantage is that the health stipend would be taxable income and, therefore, wouldn't be tax-free for your church or your pastor.

The other challenge small businesses and churches often see with stipends is that they work on the honor system. While this type of stipend is intended for healthcare coverage and medical costs, there's no way to prove that's what the money is actually being spent on. That is because you cannot require employees to substantiate what they spent their stipend on.

However, a stipend can be a great option for organizations with employees who receive premium tax credits for their health insurance. That is because a stipend won’t impact that tax credit eligibility. You can also offer a stipend to 1099 employees and volunteers. Additionally, if you use a stipend management solution, you can keep track of stipend usage.

Additionally, you can take your pastor's overall well-being into account and offer them a wellness stipend. This type of stipend helps support a healthy lifestyle by paying for expenses like gym memberships, fitness classes, home exercise equipment, wellness mobile apps, and mental health counseling.

3. QSEHRA

If you're looking for a more flexible but formal benefit, consider using a health reimbursement arrangement (HRA). With this tax-free, IRS-approved health benefit, you can reimburse your pastor and clergy for their out-of-pocket medical expenses and individual health insurance premiums as long as they are W-2 employees. Through an HRA, you're able to reimburse more than 200 eligible expenses outlined in IRS Publication 502.

The qualified small employer HRA (QSEHRA) is designed for organizations with fewer than 50 full-time equivalent employees (FTEs). With this benefit, your pastor purchases the health services they need, submits proof of their qualified expenses, and you reimburse them for their medical care up to their set allowance. If your pastor's income level qualifies them for premium tax credits, and their allowance is unaffordable, they would have to reduce their premium tax credit dollar-for-dollar by their monthly QSEHRA allowance. If their allowance is affordable, they can't collect any tax credits.

The IRS sets annual maximum contribution limits for a QSEHRA, but there are no minimum requirements.

If you want to use a QSEHRA, you must offer it to all full-time employees. You can choose to offer it to your part-time employees as well. But you can't offer different amounts to different employees based on anything other than family status, such as whether the employee is married or has dependents.

4. ICHRA

Finally, we have the individual coverage HRA (ICHRA). While the QSEHRA is only for organizations with fewer than 50 FTEs, an ICHRA is designed for organizations of all sizes. It's also your most customizable option.

There are no annual contribution limits with an ICHRA, so you can offer as much or as little allowance as you would like. You're also not required to give every pastor or clergy member the same amount. An ICHRA gives you the option to offer different allowances amounts based on 11 employee classes, such as part-time and full-time employees.

As far as premium tax credits go, your pastor would have to choose one or the other: waive their premium tax credit to participate in the ICHRA or opt-out of it to receive their full premium tax credit.

An ICHRA can only be used by people who have individual health insurance coverage. So those who are enrolled in a family member's group health insurance policy or an alternative benefit plan like a healthcare sharing ministry can’t participate.

Conclusion

While the cost of a health benefit can seem too high for small churches, there are affordable options. Even with a tight budget, you can take care of your pastor like they take care of your congregation.

With affordable benefits solutions for nonprofits like an HRA, you can give your pastor peace of mind when it comes to their health and well-being. Both your church and pastor will save on taxes, your pastor will get their preferred insurance coverage, and you'll be able to adjust the amount you offer based on your budget.

If you’re ready to offer a customized, cost-effective health benefit to your pastors and clergy, PeopleKeep can help.

Schedule a call with an HRA specialist today to set up a health benefit that's right for your church!

This article was originally published on August 23, 2018. It was last updated May 17, 2023.

1. https://www.kff.org/report-section/ehbs-2022-section-1-cost-of-health-insurance/