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Small Business Employee Benefits and HR Blog

HRAs: A Smart Health Insurance Alternative for Churches

Note: This article has information that may be outdated for 2014 and health reform. For current information, see this article on Defined Contribution for Churches.

Stand-alone Health Reimbursement Arrangements (HRAs) offer churches a smart alternative to traditional group health insurance. When churches cannot afford group health insurance, or cannot meet minimum participation requirements, many use HRAs to offer employees flexible and cost-effective health benefits. Ultimately, HRAs allow churches to take care of valued staff. HRAs for Churches

  • Churches can use HRAs to legally reimburse staff for individual health insurance premiums, and/or eligible out-of-pocket expenses.

  • Churches decide how much to provide to employees. There are no minimum and maximum contribution amounts, therefore all costs are predictable to the church.

  • Churches decide who to offer the HRA benefit to, for example: all staff, only clergy/pastors, only full-time employees, etc.

  • Church employees choose how to spend their HRA healthcare allowance, within the parameters of the HRA plan. 

HRAs are gaining popularity with churches because of these five (5) key benefits:

1. Low HRA Administration for the Church

With HRA Software, HRAs are easy and inexpensive for the church to administer. HRA Software sets up required HRA plan documents, and manages all employee enrollment, reimbursement tracking, integration with payroll, and reporting online.

With HRA Software, the church can administer the HRA in 5-10 minutes per month. Essentially, HRA administration involves the church adding approved reimbursements to employees’ paychecks.

2. The Church Controls the Cost of Health Benefits

HRAs provide churches complete control over the costs of the HRA, creating predictability with the health benefits budget. For example, with an HRA:

  • There are no minimum or maximum amounts to contribute (the church decides the amounts of the HRA allowances).

  • No actual costs are incurred until employees receive reimbursement (the church does not need to pre-fund third-party bank accounts and the church reimburses employees directly).

  • The church decides what happens to unused funds at the end of the year (rollover, or use-it or lose-it). When the employee leaves the church, funds stay with the church.

Tip: If the church wants to contribute any amount to employees' health care costs, they can afford an HRA. How? The amount to contribute to employee benefits is 100% up to the church. Many churches set up an HRA for clergy or pastors first, then expand health benefits to other key staff (such as a full-time office manager) as the budget allows.

3. The Church Designs Their HRA Plan

With an HRA, the church can virtually customize every component of their health benefits offerings. The church decides:

  • Who to offer the plan to, and how much to provide by class of employees. An example would be to provide $300/month to the pastor and $200/month to full-time program staff.

  • What type of medical expenses to reimburse (ex: all expenses allowed by the IRS or a restricted list of allowable expenses).

  • Whether to provide benefits to employees-only, or to family members as well.

  • What happens to unused HRA funds at the end of the year (ex: full balance rollover or “use it or lose it”)

Additionally, if church employees are members of health care ministry sharing programs, the church can design their HRA to supplement the Health Care Ministry Program benefits. See: HRAs and Health Care Ministry Sharing Programs.

4. Employees Are Well-Taken Care Of

From our experience, churches express a high moral obligation to take care of employees. Health benefits are an important part of the compensation offered to church staff. Employees value HRA benefits because HRAs offer employees choice in how they spend their health care dollars. For example, with an HRA employees have choice over any type of insurance plan, from any carrier. On average, individual health insurance plans are 30% cheaper than group health coverage for the same type of plan. So, the church sees value and their health insurance dollars go farther.Another key benefit for employees is that starting in 2014, employees may purchase individual health insurance plans through the new state marketplaces, where they can receive access to federal health insurance tax subsidies, and will not be denied because of a pre-existing condition.

5. HRA Software Ensures Compliance

The IRS allows this type of tax-free health insurance and medical expense reimbursement only if legal plan documents are in place, if it is administered according to federal guidelines. By using HRA Software, the church ensures compliance with:

  • HIPAA Privacy

  • COBRA

  • Medicare Reporting

  • IRS Plan Documents

  • ERISA-Compliant Reimbursement of Individual Health Plans

  • Affordable Care Act (ACA) Requirements

For more information on HRA compliance, see: Why You Need Compliant HRA Software.

For more details on HRAs, see: Health Reimbursement Arrangement (HRA) - What is it?

The Step-By-Step Guide to Creating Stand-Alone HRA Plans  

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