The Nonprofit Dilemma – How to Provide Good Health Care Benefits
Health care benefits are a good way to attract and keep top talent. Here’s what you can and cannot do when offering benefits.
Small employers — including charitable nonprofits — technically don’t have to provide health insurance to employees. The Affordable Care Act (ACA) does not penalize businesses with 50 or fewer full-time employees who choose not to offer group health care benefits. Although some Republicans are talking about removing the penalty, the employer mandate to provide coverage remains in effect for large employers with 50 or more employees.
Yet, like any business wanting to attract top talent, nonprofits should consider offering health insurance as a way to attract and retain talented employees.
Cost obviously is a concern. It can be even more of a concern for charitable nonprofits, which often have limited access to capital. PPI Benefit Solutions conducted a Nonprofit Employee Benefits Survey in 2015 and discovered that the number one objective when selecting benefit plans was to control costs. Since 1999, the national average cost to cover employees with group health insurance has increased nearly 14 percent per year, according to the Kaiser Family Foundation.
Fortunately, nonprofits have a number of economical options when seeking ways to offer health care benefits that will be both affordable and valuable.
Before looking at what you can do, let’s start with what you can’t do. Under the ACA, small employers no longer could reimburse employees for medical costs or individual health plan premiums. This law went into effect July 1, 2015, and employers who continued to offer employer-funded individual health insurance could be fined.
Here are some options that are still legal.
QSEHRA: a new healthcare reimbursement plan – Beginning Jan. 1, 2017, small employers (less than 50 employees) were allowed to establish a Qualified Small Employer Health Reimbursement Arrangement to contribute to their employees’ healthcare cost. If a small employer does not offer a group health plan to any of its employees, then they can offer a pre-tax contribution for insurance premiums and healthcare expenses. It is not a group health plan and so is not subject to the ACA coverage rules and no employment or income taxes are due. The QSEHRA is solely funded by the employer.
The employer can contribute any amount up to $4,950 for individuals or $10,000 for family contribution, prorated for those not working a full year. There are some other rules, but the funds can be used for individual health insurance premiums, and/or medical expenses, as allowed by the way the employer establishes the plan.
Employer Sponsored Health Plan – An employer sponsored health plan is one of the most popular options for health care coverage. Almost 60 percent of Americans get their coverage through their employer, according to Healthinsurance.org.
If you choose to offer a group health plan, work with a broker to determine which plan and which insurance company will provide the coverage levels and costs that meet most of your employees’ needs and pocketbooks.
One challenge for a small nonprofit is meeting the company’s minimum contribution level toward employee premiums. The nonprofit also must guarantee minimum participation requirements and should be prepared to handle hefty annual cost increases. According to the Kaiser Employer Survey, annual premiums rose three percent between 2015 and 2017. This type of plan can be the most expensive, but monthly premiums may be lowered by choosing a higher deductible.
SHOP Marketplace Group Plan – If you qualify, your nonprofit can purchase a plan on the state- or federally-run SHOP (ACA’s Small Business Health Options Program) Marketplaces. SHOP plans are similar to employer-sponsored group health insurance. The difference is that SHOPs offer access to small business tax credits and may have more flexible participation or contribution requirements.
To purchase group coverage from a SHOP, your organization must have 50 or fewer employees and meet other requirements, depending on your state. For example, if you operate a nonprofit in Massachusetts, you must contribute at least 50 percent of the premium amount. And, if you have fewer than five employees, you must have 100 percent participation.
Small Business Health Care Tax Credit – Eligible small nonprofits purchasing coverage from a SHOP can receive a Small Business Health Care Tax Credit. The credit is 50 percent of employer-paid premiums; for tax-exempt employers, the percentage is 35 percent.
To be eligible, you must meet these requirements:
• Have fewer than 25 full-time equivalent employees
• Pay an average wage of less than $51,600 a year
• Pay at least half of employee health insurance premiums
To take advantage of these savings, work with a licensed broker who is authorized to sell SHOP insurance. You will find plan options; evaluate eligibility for a tax credit; and purchase a benefit plan. Keep in mind that you can only claim this tax credit for two consecutive years. Some states provide additional premium assistance (AL, AZ, GA, IN, KS, and OK).
Co-Op – Nonprofits can join a co-op or other association to buy health insurance. Cooperatives can be formed at the national, state, or local level. The more members in the association, the more buying power the co-op will have and the better their ability to spread the risk among a large group.
For further questions, please contact us.