Where Do You Begin With Insurance?
With all of the challenges you face running your nonprofit, perhaps one of the most daunting relates to hiring and retaining successful and satisfied employees. To a certain extent, employees who choose to work for a nonprofit have altruistic motives and desire to align with your company’s mission and vision. They understand the balance of giving up greater compensation to work somewhere they believe is making the world a better place.
But there is still a practical matter of needing to earn a living and provide for their family. Wise nonprofits understand this and know that one of the most important ways to retain quality employees is to provide a competitive benefits package. For many organizations, this includes offering healthcare insurance for employees and their families.
What are the Benefits of Offering a Healthcare Package?
While the choice to offer health insurance or not remains your hands, the Affordable Care Act (ACA) made it mandatory (or pay a penalty) for businesses with more than 50 full-time employees. Small nonprofits with fewer than 50 employees on their payroll, do have a choice as to whether or not to offer healthcare insurance. If you’re in this category, there are a variety of reasons to consider still offering a healthcare package.
- Offering medical insurance demonstrates the value you place on your employees and that you care about their health and well-being. When employees feel valued, it improves company morale.
- The ability to offer a benefits package helps recruit and retain talented employees. Especially if the salary they’re offered is less than what they’d receive at a for-profit. A healthcare benefits package is an opportunity to make up for lower pay.
- Your nonprofit can offer more to employees for less direct out of pocket expenses. Health insurance is a tax-free way to increase compensation.
- A win for everyone is you’ll likely end up paying lower premiums with a group offering than if employees acquire health insurance on their own. Group insurance is typically cheaper than purchasing individual plans.
- The Affordable Care Act (ACA) may provide tax credit benefits through its Small Business Health Options Program (SHOP).
As further proof of the value that employees place on benefits over a pay raise, Glassdoor’s 2015 Employment Confidence Survey revealed that 79% of employees would prefer new or additional benefits over a pay increase. In fact, 40% of respondents indicated they valued access to healthcare insurance more than a pay raise.
Even though health insurance is highly valued by employees, the U.S. Bureau of Labor Statistics reported that less than half (47%) of nonprofits with fewer than 50 full-time employees offer health insurance. Keep in mind that the majority of nonprofits fall into this small business category.
What Does the Law Say?
As a disclaimer, it’s important that you consult with licensed health agents and tax professionals to learn specifics for your organization. The health insurance landscape is complicated and constantly evolving. The Affordable Care Act from 2010 introduced rules requiring employers to provide medical coverage for employees. As mentioned earlier, the ACA guidelines apply to your nonprofit especially if you employ 50 or more full-time workers.
The basics are that if your nonprofit has more than 50 full time employees, you must offer a minimum level of medical insurance coverage or pay a penalty. The baseline definition of a full-time employee is someone who works 30 or more hours per week or 130 hours per month. Be aware that having multiple part-time employees may equal a full-time employee. The hours worked of part-time employees must be combined and may reach the full-time equivalent. This is an example of the importance of fully understanding the IRS rules.
Maximize the Benefits You Offer While Maintaining Lower Costs?
Let’s face it, nonprofits operate with limited resources; trying to do good in the world while maintaining efficiencies. As we’ve described one of your organization’s greatest assets is your employees, making employee retention very important. A competitive healthcare benefits package retains employees and keeps company morale high. It can also be done on a limited budget. Here are a few ways to offer healthcare benefits while keeping costs down.
- Choose a High Deductible Health Plan (HDHP) which is a health insurance plan with a higher deductible than a typical plan. While this means insureds pay more for medical costs before insurance starts to pay, the monthly premiums will be lower. One way that employers assist employees in offsetting these high deductibles is to also offer a Health Savings Account (HSA). This allows employees to pay for certain medical expenses with pre-tax dollars. Another point to consider with a HDHP is that because employees cover medical expenses to a high threshold, they have an increased incentive to access best value care. This may look like seeking out lower-cost treatment clinics or using virtual medicine options for non-emergency situations.
- Offer a Health Reimbursement Arrangement (HRA). This arrangement allows nonprofits to set aside a monthly amount for each employee. Because the amount is determined by the company rather than a specific insurer’s premium, there is flexibility to set your own budget. Employees purchase health insurance on their own and then are reimbursed by the Arrangement for the payments. The company’s contributions aren’t subject to payroll tax and the reimbursements received by the employee are also free of both payroll and income tax.
With an HRA, employees may receive reimbursement for a wide range of medical related expenses, including but not limited to insurance premiums, dental premiums, copays, prescription drugs, etc. HRAs offer flexible options because employees can use the money received to pay for individual insurance or to pay directly for medical expenses.
Within the HRA umbrella, there are currently five types (as of 2020) and the characteristics vary. Primary differences between HRAs include which businesses can offer them, which employees can participate, whether the HRA can be offered along with other group insurance, and other tax related issues. Specifically, we want to highlight the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) which is available for small businesses with 50 or fewer full-time employees.
- Join a health insurance Co-op. Co-ops are member owned and exist to share costs associated with medical care. Costs are spread among the thousands of co-op participants. Because there are greater numbers, members benefit from greater negotiating power.
Basics to Know About ACA’s Small Business Health Options Program (SHOP)
As mentioned earlier, the ACA requires companies with more than 50 full-time employees to provide health insurance coverage for employees or pay a penalty. In order to ensure that insurance is available for small businesses, companies with 50 or fewer employees may purchase health insurance through the Small Business Health Options Program (SHOP) Marketplace. Purchasing through SHOP allows your small business to still purchase employee health insurance as part of a group and access pricing options that were previously reserved for large groups. There are many options to choose from and you decide what coverages and plans to offer. Make sure to read the most comprehensive and latest information about SHOP insurance.
If your business has 25 or fewer employees, you may qualify for additional benefits from the Small Business Healthcare Tax Credit. Generally, your nonprofit must enroll in a SHOP plan in order to receive the tax credit. There are other qualifications for receiving the credit including having 25 or fewer employees and paying up to 35% of employee premiums (50% for profit companies). This tax credit functions like a refund and your company receives back a portion of the amount you’ve paid to cover healthcare insurance for your employees. There are plenty of resources available about SHOP including a how-to-guide and an estimation tool to determine how much you may receive as a refund.
For Nonprofits Beginning Development of a Healthcare Benefits Package
If your nonprofit doesn’t currently offer health coverage, but you’ve read the benefits and are considering adding health benefits to your employee compensation packages, consider a few factors as you explore the possibilities and weigh your options. As you begin, assess the needs and priorities of your employees. Ask questions, take a survey and determine what kind of coverage is most valuable to your specific group. Here are three important questions to find answers to as you begin.
- Who will be covered? How many of your employees will be interested in purchasing insurance through your organization? Perhaps they’re already covered by a spouse or another family member and aren’t interested in additional or different coverage. Of the employees who would purchase the insurance, would they be interested for only themselves or for additional family members?
- What type of plan would employees be most interested in? There are many options for coverage. Don’t suggest or offer a plan your company isn’t prepared to offer, but do a survey to determine if there is more interest in a plan with low premium and high deductible or a type with a high premium but a lower deductible and more coverage.
What specific benefits are most desired? Some employees are only looking to cover catastrophic medical needs while others would also like insurance that covers vision and dental costs along with preventative care.