Small 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 premium reimbursement.
This section includes:
A cost savings example, and
Ten frequently asked questions about premium reimbursement.
In this example, a nonprofit with 20 employees is evaluating health benefit options.
Option #1: Group Health Insurance Policy
First, the nonprofit evaluates a group health insurance policy with a $6,000 family deductible on the most popular insurance carrier.The monthly premium is $13,100 with the nonprofit paying 80% and employees paying 20% via payroll.
With group health insurance:
✔ The average monthly cost to the nonprofit is $10,400.
✔ The average monthly cost to employees is $2,700.
Option #2: Individual Health Insurance and Premium Reimbursement
Next, the nonprofit evaluates individual health insurance with premium reimbursement where employees are able to secure the same or better health insurance coverage with the most popular insurance carrier. The nonprofit provides employees an average monthly contribution of $450 per employee. For many employees, this amount covers 100% of the premium.
With premium reimbursement:
✔ The average monthly cost to the nonprofit is $9,000.
✔ The average monthly cost to employees is $300.
In this example, individual health insurance and premium reimbursement creates a total annual savings of $45,600. The nonprofit saves $16,800/year and employees save $28,800/year.
With ZaneHealth, clients regularly see these types of significant savings. Over five years, ZaneHealth saves our nonprofit clients and employees over $25 million!
1) What is Premium Reimbursement?
Instead of purchasing a group health insurance policy, the nonprofit sets up a formal plan to reimburse employees for individual health insurance premiums.
2) How Does it Work for the Organization?
With premium reimbursement:
The nonprofit sets up a formal plan to give employees 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 tax-free via payroll, check, or direct deposit.
3) Is Premium Reimbursement Allowed?
Yes. Using a Self-insured Medical Reimbursement Plan (such as ZaneHealth), nonprofits can reimburse employees for health insurance premiums up to a specified monthly healthcare allowance, and basic preventive health services.
4) When is the Right Time to Switch?
Many nonprofits will make the switch from traditional group health insurance to premium reimbursement during annual renewal time, although there is no requirement to wait. For example, most group health insurance policies may be cancelled at any time. For nonprofits not currently offering benefits, a premium reimbursement benefit can be started any time.
5) How Does it Work for Employees?
With premium reimbursement, 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 group health insurance plans, and premium tax credits may be available to qualifying employees.
6) 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).
7) Is there a Minimum or Maximum Number of Employees that Must Participate?
No. Nonprofits of any size can adopt premium reimbursement. Additionally, there are no required minimum participation requirements and the nonprofit determines the eligibility requirements when they set up the plan.
8) Can the Nonprofit Give Different Allowances to Different Employees?
Yes. 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.
9) How Do We Explain the New Benefit to Employees?
As your nonprofit transitions to premium 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.
10) 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.