Many nonprofit organizations choose to offer health insurance to employees as part of a comprehensive nonprofit employee benefits package. According to a survey published by the Nonprofit Times, approximately 87 percent of nonprofits offer their employees some type of medical plan. Employers in search of a new or updated health insurance plan should consider the array of options available, such as an HSA or HRA. Today, many nonprofits are also making the switch from fully-funded health insurance plans to self-funded plans.
Health Insurance Options for Nonprofits
Nonprofit organizations face many of the same challenges and concerns as for-profit businesses; this includes making major insurance decisions on behalf of employees. Basic health insurance generally includes medical coverage; however, organizations may also choose to offer extended coverage in the form of dental and vision benefits.
Employers have a wide selection of options when it comes to group health insurance, such as self-funded plans, fully-insured plans or level-funded plans. Decision-makers may also consider other types of health plans, such as a Health Maintenance Organization (HMO), Preferred Provider Organization (PPO) or a High-Deductible Health Plan (HDHP) with a savings option.
What Is an HSA?
A health savings account (HSA) is one way that employees can save for future medical expenses. To qualify for an HSA, a person must be enrolled in a high-deductible health insurance (HDHP). Each year, the IRS defines the minimum deductible for these plans and the maximum out-of-pocket expense that a plan holder can spend. For 2021, the maximum out-of-pocket amount is $7,000 for an individual and $14,000 for a family. Employees who have an HSA through their workplace can choose to set up automatic contributions from their payroll.
Through an HSA, an employee receives a debit card or checks that are directly linked to the HSA balance. These funds can only be used on eligible medical expenses, including coinsurance, copays and deductibles. However, insurance premiums cannot be paid for using HSA funds. A health savings account differs from a flexible spending account as the balance on HSAs roll over at the end of each year. This means that employees do not have to worry about losing their savings. Individuals who are age 65 or older and enrolled in Medicare cannot contribute to an HSA. However, these individuals can still use any money built up in the account to pay for out-of-pocket medical expenses.
What Is an HRA?
Another option that employers may consider for meeting the health care needs of employees is an HRA. A health reimbursement arrangement (HRA) is a type of employer-funded plan that is used to reimburse employees for any qualified medical expenses that they incur. In some cases, an HRA will also cover the cost of insurance premiums. With an HRA, employers are permitted to claim a tax deduction for reimbursements made through the plan and this money is typically tax-free. As with an HSA, a health reimbursement arrangement can only be used to cover medical costs.
An HRA is not an account but is, instead, a plan owned by an employer to cover eligible medical expenses. The employer chooses how much is put into the plan and the employee requests reimbursement for any medical expenses that were actually incurred. Employers must provide all employees within the same class the same HRA contribution amount. There are some important points to consider with HRAs; an HRA is not portable, meaning when the employee leaves the company, they also lose their benefits. In addition, only certain health expenses can be reimbursed back to employees.
Self-Funded vs. Fully-Funded Nonprofit Health Insurance Plans
Employers focused on gaining more control over their health insurance may be comparing self-funded and fully-funded insurance plans. These two types of plans are very different and can have a major impact on an employer’s expenses and operations.
A fully-funded health insurance plan refers to a traditional setup in which an employer pays a premium to the insurance carrier. In return, the insurance carrier pays the medical claims of employees who have signed up as plan participants. The insurance company only pays medical claims that are covered in the policy’s contract and only beyond a specified annual out-of-pocket maximum. With a fully-funded health insurance plan, the bulk of the risk is placed on the insurance carrier rather than the employer.
Under a self-funded health insurance plan, the opposite is true. The employer assumes most of the risk and is responsible for providing all of the funds needed to pay for employee medical claims. Although the employer carries most of the risk, there are several key benefits to switching to self-funded insurance. If employees are healthy, an employer can save money through fewer claims and no fixed premium to pay. However, if there are a lot of claims in a given year, these expenses can add up for an employer and cause some financial challenges.
Who Must Offer Nonprofit Health Insurance?
Not all nonprofit organizations are forced to provide health insurance benefits to employees. Under the ACA, employers with 50 or more full-time employees (or the part-time equivalent), must provide health insurance to workers or risk a penalty from the IRS. To comply with the ACA, health insurance plans offered by employers must meet minimum requirements for affordability and coverage. Generally, coverage must also be extended to an employee’s dependents, which may include the employee’s biological or adopted children under age 26.
Speak With An Experienced Benefits Consultant
Nonprofit organizations often struggle to provide employee benefits such as health insurance due to budget restraints. However, offering health insurance as part of a comprehensive employee benefits package can result in countless benefits. Health insurance is a highly sought-after benefit that can attract job seekers and retain existing talent. Providing employees with health insurance is also an excellent way to improve employee productivity, morale and motivation.
Navigating the complex world of nonprofit health insurance can be difficult. Working with an experienced employee benefits consultant can help ensure that a business makes informed decisions that will provide value to the organization in the long-term. For more information about nonprofit health insurance, contact the experts at Business Benefits Group by phone at (844) 201-3612 or request a consultation online today.