Small and medium-sized nonprofits face unique challenges with hiring and retaining employees. With limited resources, leadership teams must be strategic about how to allocate compensation and benefit dollars.
To gain control over the organization’s health benefits budget, and to show appreciation to loyal, hardworking employees, many nonprofits are switching from group health insurance to individual health insurance reimbursement. What? Why? How?
This article answers ten common questions about how individual health insurance reimbursement works for nonprofits and employees.
Note - This article is from our new eBook, The Nonprofit Guide to Individual Health Insurance Reimbursement. To download the full resource, click here.
Q1: What is Individual Health Insurance Reimbursement?
Instead of offering employer provided health insurance, the nonprofit reimburses employees for individual health insurance premiums.
Q2: How Does it Work for the Organization?
With individual health insurance reimbursement:
The nonprofit sets monthly healthcare allowances.
Employees purchase their own health plan and submit reimbursement requests.
The requests are processed (usually by a third party) and the nonprofit reimburses employees via payroll, check, or direct deposit.
Q3: Is Individual Health Insurance Reimbursement Allowed?
Yes. Using a Self-insured Medical Reimbursement Plan, nonprofits can reimburse employees for health insurance premiums up to a specified monthly healthcare allowance, and basic preventive health services.
Q4: When is the Right Time to Switch?
Many nonprofits will make the switch from traditional employer health insurance to individual health insurance during annual renewal time, although there is no requirement to wait. For example, most employer health insurance policies may be cancelled at any time.
Q5. How Does it Work for Employees?
With this type of employee health benefits, each employee selects and purchases an individual health policy that best fits their family’s needs, choosing any plan, from any carrier. Employees submit a reimbursement request for their premium expense, and are reimbursed up to the amount available in their balance. They can keep their same network and doctors, and pick a coverage level that fits their health needs. Individual health plans cost 20 to 60 percent less than traditional employer health insurance plans, and premium tax credits may be available to qualifying employees.
Q6. What is Individual Health Insurance?
Individual health insurance is a type of policy that an employee purchases for himself and/or his family - just like car insurance. Employees own the policy and can take it with them if they leave the organization. Employees pay for their policy with their own money, and can be reimbursed for the premium (or a portion of the premium).
Q7. Is there a Minimum or Maximum Number of Employees that Must Participate?
No. Nonprofits of all sizes can adopt individual health insurance reimbursement. Additionally, there are no required minimum participation requirements, and the nonprofit determines the eligibility requirements when they set up the plan.
Q8. Can the Nonprofit Give Different Allowances to Different Employees?
Employees in different employee classes may receive different allowances. Allowances may also vary by family status. All employees in the same class should be treated equally.
What do we mean? Employee classes are defined by the employer and must be based on genuine job classifications. Criteria that may be used to define a class include job description, full-time versus part-time status, active versus retired status, geographic location, and membership in a collective bargaining agreement (e.g. union). Employers may also give different benefits to employees based on the employees’ choice of plan (e.g., reimbursement may be available only to those opting out of a group plan).
Q9. How Do We Explain the New Benefit to Employees?
As your nonprofit transitions to individual health insurance reimbursement, it is important to educate employees about how individual health insurance works and its benefits to employees and their families.
Educate employees about:
How to purchase an individual health insurance plan.
Why the nonprofit has decided to offer health benefits in this way. (Remember, it is great for them too!)
The benefits of individual health insurance such as plan choice, portability, and cost-savings.
How to request reimbursement for their premium expenses.
Who to contact, if they have questions.
Q10 - How Can We Calculate the Cost Savings of Switching to Individual Health Insurance Reimbursement?
To calculate potential cost savings, start with a simple financial analysis. Compare the cost of your current employer health insurance with comparable individual health insurance rates in your area. Your health insurance advisor can help, as can a simple online cost analysis.
As nonprofits switch to individual health insurance reimbursement it is common for leadership, the Board of Directors, and employees to have questions about what it is and how it works. What additional questions do you have for your organization? Download this PDF guide or leave a question below.