Nonprofit organizations face important decisions about employee health benefits, especially as the Affordable Care Act (ACA) creates new regulations, and new opportunities, for employers. Just like for-profit employers, the key reason nonprofits offer health insurance is for recruiting and retention. And yet, many nonprofits have been priced-out of traditional group health insurance.
HHS's Agency for Healthcare Research and Quality estimated there were nearly 500,000 nonprofit employers in the US in 2011:
Nearly half of US nonprofits had fewer than 10 employees; and two-thirds had fewer than 50 employees
Only 47% of nonprofits with less than 50 employees provided employees health insurance coverage
With limited access to capital, small nonprofits often feel hard-pressed to offer or maintain health insurance coverage for their employees -- even though it is something leadership, the board of directors, employees, and donors/funders value.
So, what are the key questions nonprofits should ask before choosing health insurance? Here's three questions to ask to get started on understanding health insurance options for your nonprofit.
1. Should we offer health benefits, or not?
Nonprofits, board members, and employees all agree that health benefits play a significant role in employee compensation, recruitment, retention, and satisfaction. The question is usually not should we offer health benefits, but can we afford to?
Nevertheless, when a nonprofit considers offering health benefits here are some important considerations:
Health benefits can be a cost-effective (and tax-free) way to boost employee compensation.
If you are a nonprofit with fewer than 50 full-time equivalent employees, you will not pay a fine for not offering a health plan in 2015 (the ACA 'employer mandate' requirement).
Health benefits are a way to demonstrate you care about your employees and to keep morale high. And, considering the recruiting, training, and general cost of losing and replacing an employee, investing in health benefits up-front can actually save the nonprofit money in the long run.
In the last few years new health insurance solutions for nonprofits and small employers have emerged that make health benefits more affordable. See #3 below.
2. How much can we afford to spend?
Now that you know you want to offer some form of health benefits to employees, what can you afford to invest?
If you currently provide employees health benefits, you may already have a budget for health benefits. But, if you're like the majority of small nonprofits (< 50 employees) who do not offer health benefits, it may be your first time considering options.
Many nonprofits decide how much they can budget for health benefits and look at options from there. Other nonprofits assess current rates to build their budget.
For example, in 2013 the average group health insurance premium for a single employee is $5,884 annually ($490 per month), and for family coverage, $16,351 annually ($1,363 per month). Premiums have more than doubled since 2002, and increased 168% since 1999. The premium is usually shared between the employer and employee, and if you are eligible for the small business tax credits you may find less expensive rates through your state SHOP Exchange.
Because of the high costs of group health insurance, nonprofits also look at and compare the cost of individual/family health insurance rates. A growing trend is for nonprofits to pair individual health insurance with a defined contribution offering (discussed more below). In 2012, the average individual health insurance rates were $190 per month for an individual and $412 per month for a family. And as of 2014, massive tax subsidies are available to eligible employees to reduce what they pay for health insurance.
3. Which health insurance strategy should we choose?
Today there are new options for nonprofit health benefits. Most choices fall into two strategies: a traditional group health insurance plan and a defined contribution health plan.
Group Health Insurance Plan: Also called 'employer-sponsored health insurance' or 'job-based health insurance', a group health insurance plan usually covers all employees and their family members. These plans are generally uniform in nature, offering the same benefits to all employees or members of the group. Group health insurance is chosen and purchased by the nonprofit, and employees are usually asked to share the premium cost. Additionally, there are minimum participation requirements and a minimum percentage the nonprofit must contribution to the employee premiums.
Defined Contribution Health Plan: With a defined contribution strategy, rather than paying the costs to provide a specific group health insurance plan (a "defined benefit"), nonprofits can fix their costs on a monthly basis by establishing a defined contribution health plan. Defined contribution health plans are an affordable alternative to employer-sponsored group health insurance plans. Defined contribution health plans by themselves are not health insurance plans, rather the nonprofit offers employees a healthcare allowance to spend on their own personal health insurance policies. A defined contribution health plan is like a business expense account for health insurance. The plan can be set up to provide different allowance amounts by type of employee (e.g.: $200/month to program directors and $150/month to administrative staff), and there are no minimum contribution amounts or participation requirements.
Within these two main strategies, there are many variations. For more, see:
- How Non-Profits Can Offer Health Insurance
- Comparison of Individual Health Insurance vs. Group Health Insurance
Ultimately, the best approach will be one that achieves your organization's recruiting and retaining goals and meets the organization's short-term and long-term budget.
What questions do you think every nonprofit should ask before choosing health insurance? Or, what questions do you have? Leave a comment.