As healthcare costs rise each year, small and midsize employers sometimes struggle to deliver quality health benefits to their employees. This can be especially true for nonprofit organizations since revenue can vary significantly from month to month.
In a PeopleKeep survey of nonprofit business owners, 81% said that cost was one of the most pressing challenges in finding a healthcare plan that fits their needs. Additionally, more than half of those surveyed said they’re interested in seeing the federal government expand the number of alternatives to traditional group coverage.
Luckily, there are alternatives to traditional group health insurance plans that many nonprofits have found instrumental in offering quality health benefits to their workers.
This article will cover how nonprofits can offer affordable health benefits and why these alternatives to traditional group health insurance work for nonprofit organizations.
There are various ways nonprofit organizations can offer health benefits to their staff. While small group health insurance options are available, many small businesses and nonprofits find it challenging to offer these medical plans to their workers due to the cost and complexity associated with traditional group health insurance.
Popular alternatives include health reimbursement arrangements (HRAs) and employee stipends. We’ll cover these options in-depth in the sections below.
An HRA is an IRS-approved, employer-funded health benefit used to reimburse employees for qualifying out-of-pocket medical care expenses and individual health insurance premiums.
Many for-profit companies and nonprofits use HRAs over group health insurance or health stipends because of the tax advantages and budget control that HRAs facilitate compared to an insurance agency.
With an HRA, organizations set a monthly allowance for employees to use. After making a wide range of eligible healthcare purchases, including insurance premiums, employees submit documentation of their medical expenses to their employer.
From there, you’ll review the documents and reimburse employees up to their monthly allowance amount, tax-free, if everything’s in order.
There are a few different types of HRAs, each with its own features and requirements that enable nonprofit organizations to deliver meaningful benefits to their employees.
First up is the qualified small employer HRA (QSEHRA). A QSEHRA is specifically designed for organizations with fewer than 50 full-time equivalent employees (FTEs).
With a QSEHRA, all eligible reimbursements are free of payroll tax for the organization and its employees. Reimbursements can also be free of income tax for employees if the employee has medical coverage through a policy providing minimum essential coverage (MEC).
Next, there’s the individual coverage HRA (ICHRA). Like a QSEHRA, nonprofits and other businesses can use an ICHRA to reimburse employees tax-free for individual health insurance premiums and other medical expenses.
All employers with at least one W-2 employee can offer an ICHRA. This includes businesses, nonprofits, government entities, and religious organizations.
Unlike a QSEHRA, an ICHRA can be offered by organizations with 50 or more full-time employees. You can also use it to satisfy the Affordable Care Act (ACA)’s employer mandate as long as your workers have individual health insurance coverage that meets MEC.
An ICHRA can be offered as a stand-alone benefit or as another benefits option for your employees who don't qualify for your group health insurance policy. However, group health insurance and an ICHRA can't be offered together to the same group of employees.
For example, you could offer group health insurance to your full-time employees and an ICHRA to part-time employees. However, you can only offer full-time employees an ICHRA or group health insurance, not both.
While newer than QSEHRAs, ICHRAs are also growing in popularity. A survey conducted by the Kaiser Family Foundation1 found that 88% of large employers favored ICHRAs as an alternative to group health insurance. Additionally, the HRA Council2 found that ICHRA adoption among U.S. employers tripled from 2020 to 2022.
Finally, there’s the group coverage HRA (GCHRA). Often referred to as an integrated HRA, a GCHRA is an employer-funded medical reimbursement plan linked with a group health insurance plan—usually a high-deductible health plan (HDHP).
GCHRAs are only offered to those who participate in an organization’s group plan, as it’s an ancillary benefit intended to help employees with their deductible costs.
Employees can use their GCHRA allowance to get reimbursed for healthcare costs before their out-of-pocket maximum is met or for expenses that aren’t fully covered by the group plan, such as vision or dental expenses.
While HRAs are an excellent health benefits solution for organizations of all sizes and types, they have a few special perks that make them an even more attractive choice for nonprofit organizations.
HRAs empower nonprofit owners to offer quality health benefits on a tight budget. Rather than suffering through high costs and annual rate hikes, HRAs allow nonprofit owners to set a specific budget that they can count on month-to-month and year-to-year.
What's more, while nonprofit owners may not be able to offer employees corporate-level salaries, offering a competitive benefit more than makes up for it. According to our 2022 Employee Benefits Survey Report, 82% of employees said the benefits package an employer offers is an important factor in whether or not they accept a job with the organization.
By offering quality benefits, you’ll be able to attract and retain employees despite a tight budget.
Another substantial advantage HRAs have for nonprofit organizations is their flexibility. Each employee can use the benefit differently and can even sign up for an individual insurance plan that meets their unique healthcare needs. With the individual health insurance plan of their choice and an HRA, you can give your employees access to health services in their area no matter where they live.
When employees can choose their own insurance plan, they’ll have access to their preferred doctors and hospitals. This isn’t always the case with traditional group insurers.
Nonprofit organizations typically employ people with a strong dedication to the group's mission. Employees often span several demographics, including age, marital status, insurance status, and even the state they live in. No matter how your team varies, a single HRA can work for all of them as long as they are W-2 employees.
Finally, HRAs are quick and easy to set up and administer monthly, especially if you utilize an automated software solution like PeopleKeep. With our software services to help you make reimbursements and our award-winning customer support team to answer your questions, you'll only need a few minutes every month to administer your own HRA.
Time-saving tools like those available with PeopleKeep are beneficial for nonprofit directors who often wear many hats, leaving them with little extra time to spend researching and administering employee benefits.
While HRAs are an excellent option for providing healthcare benefits to your workers, they may not work for everyone. For example, if you employ independent contractors who receive Form 1099 instead of a W-2, they aren't eligible for an HRA. Likewise, international workers can't take advantage of an HRA's tax-free status.
In addition, because HRAs provide tax-free reimbursements for medical care expenses, including individual health insurance premiums, employees must account for their HRA allowance and any premium tax credits they receive.
With a QSEHRA, this means reducing tax credits by the amount of your QSEHRA allowance. If you offer an ICHRA to your workers, they'll have to choose between their ICHRA or tax credits if the ICHRA isn't considered affordable.
In these unique situations, a health stipend might be a better option. A health stipend works like an HRA, where you can provide a monthly allowance for medical expenses. However, they are taxable for both the employer and the employee.
Health stipends also come with fewer regulations than an HRA. This enables you to expand your eligible expenses to cover additional benefits like wellness costs and mental health services.
HRAs are great options for nonprofit organizations struggling with the costs, time requirements, and other limitations of group health plans. With these alternatives to traditional group health insurance, you can provide personalized benefits to employees without breaking the bank due to rate increases.
With an HRA, you can control the benefits costs, provide value to employees regardless of your organization's size or budget, and outsource administration requirements to a software provider.
If you're ready to offer health benefits for your nonprofit, PeopleKeep can help! Our HRA administration software makes it easy for organizations like yours to set up and manage their benefits in minutes each month.
This blog article was originally published on March 9, 2016. It was last updated on January 19, 2023.
2. https://hracouncil.wildapricot.org/resources/Documents/2022_HRAC_Data_FullReport_Final.pdf