Health Insurance for Nonprofits: An In-depth Look at Options
Nonprofit organizations face distinct challenges when it comes to providing health benefits for their employees. Balancing the need to deliver value to their teams while maintaining financial sustainability requires innovative solutions. In this guide, we will explore the dynamic landscape of health coverage for nonprofits and highlight the advantages of Health Reimbursement Arrangements (HRAs), including Individual Coverage HRAs (ICHRAs) and Qualified Small Employer HRAs (QSEHRAs).
We will address the pain points nonprofits often experience, such as limited budgets and low salaries, and discuss strategies to overcome these challenges while ensuring effective stewardship of funds.
Join us as we navigate the world of health benefits for nonprofits and uncover how HRAs can be a game-changer in achieving a sustainable balance between mission-driven impact and employee well-being.
Harnessing the Power of HRAs: Supporting Employee Well-Being and Financial Sustainability in Nonprofits
According to a recent study conducted by the Urban Institute, approximately 20% of nonprofit workers in the United States lack access to employer-sponsored health insurance.
This highlights the importance of exploring innovative solutions that can help bridge this gap and support the well-being of nonprofit employees.
One such solution gaining traction is Health Reimbursement Arrangements (HRAs). HRAs offer flexibility and cost control, allowing nonprofits to allocate their limited resources efficiently while attracting and retaining top talent.
In a report published by the Society for Human Resource Management (SHRM), it was found that nonprofits with comprehensive employee benefits, including health coverage, experience higher employee satisfaction and increased productivity. This demonstrates the importance of investing in employee well-being and the positive impact it can have on nonprofit mission success.
These statistics and real-world examples underscore the significance of exploring innovative approaches to health benefits in the nonprofit sector. HRAs provide a strategic tool for nonprofits to deliver valuable health coverage, overcome budgetary constraints, and attract and retain talented individuals dedicated to advancing their organization's mission.
Join us as we delve into the world of health benefits for nonprofits, examining the advantages of HRAs and how they can help nonprofits strike a balance between financial sustainability, honoring the mission, and prioritizing employee well-being.
Nonprofits: Balancing Mission, Stewardship, and Limited Resources
As nonprofits, the core focus is undoubtedly on advancing the mission and making a positive impact. However, it's essential to acknowledge the challenges that come with limited budgets, typically low salaries, and the need to be good stewards of the funds raised or received through grants. In this section, we'll delve into these pain points and discuss strategies for nonprofits to navigate these challenges effectively.
Putting Dollars Towards the Mission, Not Overhead
Nonprofits understand the significance of directing funds towards their mission rather than overhead expenses. It's crucial to optimize the allocation of resources to ensure maximum impact. However, certain operational costs, such as employee benefits, cannot be overlooked. Health benefits, in particular, play a vital role in attracting and retaining top talent, which is essential for nonprofit success. Striking the right balance between minimizing overhead and providing competitive health benefits becomes a crucial consideration.
Being Good Stewards of Funds
Nonprofits have a responsibility to be good stewards of the funds they raise or receive through grants. Donors and grantors want to see their contributions utilized wisely and effectively. This means carefully evaluating expenditures and making strategic decisions. While it may be tempting to minimize costs across the board, it's essential to remember that investing in employee benefits, including health coverage, is an investment in the organization's long-term sustainability and success.
Navigating Nonprofit Pain Points
Limited budgets and typically low salaries present challenges for nonprofits in various ways. One of the most significant pain points is attracting and retaining talented individuals who can contribute to the organization's mission. Nonprofits often compete with for-profit entities that can offer more substantial compensation packages. As a result, finding and retaining skilled employees can be an ongoing struggle. Limited budgets can make it challenging to offer competitive benefits, further adding to the difficulty of attracting and retaining top talent.
Strategies for Success
While the pain points may seem daunting, there are strategies nonprofits can employ to overcome these challenges and thrive:
- Strategic Budgeting: Prioritize spending on areas that have the most significant impact on your mission. This may involve finding cost-effective solutions for overhead expenses while ensuring essential employee benefits, such as health coverage, are not compromised.
- Creative Compensation Packages: Consider alternative forms of compensation, such as flexible work arrangements, professional development opportunities, or unique non-monetary perks that align with your employees' values and interests. This approach can help offset the limitations of low salary budgets.
- Maximizing Health Benefit Value: Partner with benefit providers who understand the unique needs of nonprofits and offer cost-effective solutions without compromising quality. Platforms like Take Command Health can help nonprofits navigate the complexities of health benefits, providing tailored options that fit within limited budgets.
- Highlighting the Mission: Emphasize the impact and purpose of the organization's work when recruiting and engaging employees. Nonprofits often attract individuals who are passionate about making a difference, and leveraging that sense of purpose can help compensate for lower salary offerings.
By employing these strategies and prioritizing the effective utilization of resources, nonprofits can overcome the pain points associated with limited budgets, low salaries, and the need for stewardship.
By providing competitive health benefits while being mindful of costs, nonprofits can attract and retain talented individuals who share their vision and contribute to the organization's mission-driven success.
Addressing the Unique Health Benefit Challenges in Nonprofits with HRAs, ICHRAs, and QSEHRAs
Nonprofit organizations, with their distinctive mission and structural frameworks, often confront unique challenges when it comes to delivering health benefits to their employees. As these organizations strive to maximize their resources towards mission-centric activities, they are often in search of efficient, cost-effective solutions to provide robust health benefits.
Health benefits are a crucial part of the compensation package for employees, and their importance cannot be understated. However, given the unique financial and structural nuances of nonprofits, traditional group health insurance plans may not always be the most feasible or efficient way to provide these benefits.
Enter HRAs – this category of employer-funded plans allows organizations to reimburse employees for out-of-pocket medical expenses and individual health insurance premiums on a tax-advantaged basis. Within the HRA universe, two specific types – the Individual Coverage HRA (ICHRA) and the Qualified Small Employer HRA (QSEHRA) – have emerged as particularly valuable tools for nonprofits.
ICHRA and QSEHRA allow nonprofits to control costs while maintaining a high level of care for their employees. ICHRAs offer flexibility and scalability, making them a suitable choice for larger organizations, while QSEHRAs offer simplicity and cost-effectiveness, making them an attractive option for smaller nonprofits.
Exploring Health Reimbursement Arrangements (HRAs)
Health benefits are a key factor in recruiting and retaining top-tier talent in any organization, including nonprofits. But traditional health insurance plans may not always be the most cost-effective or flexible solution for these organizations. HRAs are a unique tool that could potentially transform the way nonprofits approach health benefits.
The most important thing about HRAs like QSEHRA or QSEHRA is that they allows nonprofits to reimburse employees tax-free for individual health insurance premiums and medical expenses.
This is a big deal because nonprofits can now get the same favorable tax treatment as big company group health plans but with a lot less hassle.
HRAs enable nonprofits to adopt a strategy called "defined contribution" which is much simpler than hassling with a one-size-fits all group plan and is proven to be much more efficient, affordable, and predictable.
Nonprofits can now give their employees a fixed dollar amount each month, say $200, and each employee can then shop for the plan that fits his or her needs the best.
Sally can choose a Blue Cross plan for her doctor, Roger can get Aetna to cover his prescription, and Betty can stay on her husband's group plan.
Gone are the days of comparing quotes from each insurance company or the headache of trying to get everyone what they want without breaking the budget!
And employees end up happier too.
What are HRAs?
Health Reimbursement Arrangements, or HRAs, are employer-funded health benefit plans that reimburse employees for out-of-pocket medical expenses, as well as premiums for individual health insurance policies. HRAs are not health insurance plans themselves; rather, they are a means for employers, including nonprofits, to help their employees pay for healthcare costs.
The Advantages of HRAs for Nonprofits
HRAs serve as a robust solution for nonprofits navigating the complex landscape of health benefits.
- Cost Control: One of the most significant challenges nonprofits face is budget predictability, particularly concerning healthcare costs. HRAs offer a solution to this issue by allowing nonprofits to determine how much they will contribute to each employee's HRA account each year. This fixed contribution model enables nonprofits to budget their healthcare expenses accurately and efficiently. The ability to control healthcare costs without compromising the quality of benefits offered to employees is an appealing feature of HRAs for nonprofits.
- Flexibility: Another strength of HRAs lies in their flexibility. They allow nonprofits to design a health benefit plan that aligns with their resources and the specific needs of their employees. HRAs can reimburse a broad spectrum of medical expenses, including doctor visits, prescription medications, and even health insurance premiums. This flexibility means that nonprofits can provide a health benefits package that truly supports the wellbeing of their employees.
- Tax Efficiency: Lastly, the tax advantages offered by HRAs cannot be understated. The reimbursements provided through an HRA are typically tax-deductible for the nonprofit, reducing their overall tax liability. Additionally, these reimbursements are received tax-free by the employees, thereby enhancing the value of their health benefits. This dual tax efficiency creates a win-win scenario for both the nonprofit and its employees.
Limitations of HRAs for Nonprofits
Despite their advantages, HRAs do come with certain limitations:
- Complexity: HRAs come with rules and regulations that can seem daunting. The complexity of understanding, implementing, and managing these plans may appear as a hurdle to some nonprofits. However, with Take Command, this challenge is effectively mitigated. Our platform simplifies the setup, administration, and compliance of HRAs, making these health benefits solutions accessible and manageable for nonprofits, regardless of their size or resources.
- Limited Scope: While HRAs provide a substantial contribution to health coverage, they might not cover all health expenses. Employees may need to complement their HRA with an individual health insurance policy. With Take Command’s personalized support and user-friendly platform make it easier for employees to navigate the health insurance marketplace and find a plan that complements their HRA benefits.
Leveraging HRAs' cost-efficiency, flexibility, and tax benefits, nonprofits can build a robust health benefits strategy. With Take Command’s expert guidance, nonprofits can effectively manage HRAs, aligning their health benefits with their mission, ensuring employee wellness, and financial sustainability.
Which HRA is right for you?
Case Study: QSEHRA Success in Nonprofits - New Britain ROOTS
New Britain ROOTS, a small nonprofit based in Connecticut, promotes food security and empowered eating choices through local advocacy and education initiatives. With a small team and limited funding, the organization faced a significant challenge: providing affordable health benefits for their staff.
Executive Director, Joey Listro, found himself up against the costly reality of group health insurance plans. As a growing organization, they knew they needed a competitive benefits package to attract and retain talent. But how could they achieve this without overstretching their budget?
The Quest for an Affordable Solution
Upon exploring various options, Joey stumbled upon the QSEHRA. As the only full-time staff member, traditional employer plans were prohibitively expensive, costing nearly five times more than a QSEHRA.
But the unfamiliarity of QSEHRA presented its own hurdles. Joey's board of directors had never heard of it and were unsure about its legality. As a non-profit, the board needed to approve the QSEHRA, meaning Joey had to provide accurate information to get everyone on the same page.
Enter Take Command
That's where Take Command stepped in, offering guidance and educational resources about QSEHRA. With this support, Joey was able to clarify the benefits of QSEHRA to his board, gaining their approval to move forward with the setup.
Take Command’s team continued to assist Joey throughout the setup process, providing a simple, user-friendly platform for managing the QSEHRA. As a result, New Britain ROOTS successfully implemented their QSEHRA in January, currently reimbursing premiums only.
Joey shares, "The setup was quick and simple, and reporting and reimbursements are easy as well."
The Impact of QSEHRA
By implementing QSEHRA, New Britain ROOTS could afford to provide health benefits to its small team. Moreover, this choice allowed them to remain competitive in the job market, a crucial factor as they plan to expand their team.
This case study exemplifies how nonprofits, even with limited resources, can leverage QSEHRA to provide affordable, sustainable health benefits to their team, supporting their mission and growth.
Individual Coverage Health Reimbursement Arrangement (ICHRA)
What are ICHRAs?
The Individual Coverage Health Reimbursement Arrangement, or ICHRA, is a type of HRA that allows employers to reimburse employees for individual health insurance premiums and eligible medical expenses on a pre-tax basis. Unlike the QSEHRA, ICHRA has no annual contribution limits, and employers can offer ICHRAs to different classes of employees, with varying contribution amounts.
The Advantages of ICHRAs for Nonprofits
ICHRA presents several distinctive advantages to nonprofits, transforming the way these organizations provide health benefits to their employees:
- Flexibility and Customization: Perhaps the most significant advantage of ICHRAs is the flexibility they provide. Nonprofits can customize their contributions based on distinct employee classifications such as full-time, part-time, seasonal employees, or even based on geographic location. This means nonprofits can offer a competitive benefits package that matches the diverse needs of their workforce.
- Cost Control: Budgeting is a major concern for most nonprofits, and the predictability of ICHRAs makes them an attractive option. Organizations can set defined contribution amounts, thus effectively managing their healthcare expenditure. This allows for better financial planning and resource allocation without the fear of escalating health insurance premiums.
- No Size Limitation: Unlike QSEHRAs, which are exclusive to employers with fewer than 50 employees, ICHRAs are accessible to nonprofits of any size. This scalability makes ICHRA a feasible health benefit solution for a wider range of organizations, from small local charities to large national nonprofits.
- Tax Advantages: The tax benefits offered by ICHRAs cannot be overlooked. Reimbursements provided through an ICHRA are not considered taxable income for employees, making them a more attractive benefit. Simultaneously, these reimbursements are tax-deductible for the nonprofit, leading to substantial tax savings.
- Employee Choice: ICHRAs empower employees with greater choice and autonomy over their healthcare decisions. They can select the individual health insurance that best meets their needs and that of their families. This can lead to higher satisfaction levels and increased loyalty among employees.
Limitations of ICHRAs for Nonprofits
While ICHRAs offer numerous benefits, it's important to also consider potential limitations. This balanced perspective ensures that your nonprofit makes an informed decision that aligns with its specific circumstances, resources, and the needs of its workforce. In this section, we'll delve into the challenges that ICHRAs may pose and how they can be effectively addressed.
- Employee Coverage Requirement: Employees must have individual health insurance coverage to participate in an ICHRA. This could be a limitation for employees who lack access to affordable individual health insurance options. However, Take Command can assist employees in finding the right insurance plan that aligns with their healthcare needs and financial capabilities
- Administrative Complexity: ICHRAs can be administratively complex to manage due to their customizable nature. Ensuring compliance with various regulations may require additional resources. But with Take Command's comprehensive HRA administration service, nonprofits can effectively manage their ICHRAs without the stress. We handle everything from setup, plan design, and compliance documentation, to employee education and ongoing support.
Leveraging ICHRAs for Nonprofits with Take Command: A Strategic Approach to Health Benefits
ICHRAs provide a flexible and scalable health benefits solution for nonprofits of all sizes. While they have some limitations, with proper administration, ICHRAs can be a strategic tool for nonprofits to attract and retain talent while managing their health benefit costs effectively.
By partnering with Take Command, nonprofits can fully leverage the benefits of an ICHRA while mitigating potential drawbacks. Our services ensure that ICHRAs become a strategic, manageable, and effective tool in your health benefits arsenal.
Health benefits for small nonprofits
Small nonprofits have an HRA designed specifically for them. It's called a Qualified Small Employer HRA and it's for nonprofits with less than 50 full time equivalent employees.
What are QSEHRAs?
QSEHRA is a specific type of HRA designed for small employers with fewer than 50 employees who do not offer a group health insurance plan. QSEHRA allows these employers to provide a set amount of tax-free money to their employees each year. Employees can use this money to purchase individual health insurance and cover other qualifying healthcare expenses.
The Advantages of QSEHRAs for Small Nonprofits
QSEHRAs bring several compelling benefits to the table for smaller nonprofits:
- Cost Control: In an economic climate where expenses need to be carefully managed, QSEHRAs provide nonprofits with predictable and controlled costs. Nonprofits can determine their own annual budget for health benefits, providing financial certainty that is especially crucial for smaller organizations operating on limited budgets.
- Simplicity and Ease of Management: QSEHRAs offer a simpler structure compared to their ICHRA counterparts. With fewer customization options and regulations, the administrative burden for small nonprofits is significantly reduced. This simplicity makes QSEHRAs an excellent choice for organizations with limited administrative capacity or those just starting to offer health benefits.
- Tax Benefits: The tax advantages of QSEHRAs are a win-win for both nonprofits and their employees. Nonprofits can deduct their contributions from their taxes, thereby reducing their overall tax liability. On the other hand, employees receive these reimbursements tax-free, maximizing the value of their health benefits.
- Employee Empowerment: With QSEHRAs, employees have the flexibility to choose their own health insurance plan that suits their personal needs and circumstances. This autonomy can lead to higher satisfaction and engagement among employees, which is crucial for attracting and retaining talent in the nonprofit sector.
- Legal Compliance: QSEHRAs are fully compliant with the Affordable Care Act (ACA) rules, removing the risk of penalties and ensuring legal conformity. This compliance reassurance further adds to the appeal of QSEHRAs for small nonprofits.
- Integration with sharing ministries: Nonprofits can reimburse employees for their sharing ministry costs with a QSEHRA as long as a Minimum Essential Coverage plan has also been set up.
These advantages position QSEHRAs as a highly suitable health benefits solution for small nonprofits, offering simplicity, cost control, tax advantages, and employee satisfaction.
Limitations of QSEHRAs for Nonprofits – And How Take Command Can Help
While QSEHRAs offer several unique benefits for smaller nonprofits, it's also important to be aware of their limitations:
- Employee Limitations: QSEHRAs are exclusively available to employers with fewer than 50 employees. Larger nonprofits seeking to leverage the benefits of an HRA would need to consider an ICHRA instead. However, for smaller nonprofits that qualify, Take Command simplifies the setup and administration process, making QSEHRAs an accessible and easy-to-manage solution.
- Contribution Limits: Unlike ICHRAs, QSEHRAs come with IRS-set annual contribution limits. These limits may restrict the extent of health benefits a nonprofit can provide. Fortunately, Take Command's platform allows organizations to easily track and manage their contributions, ensuring they remain within IRS guidelines while maximizing the value they can provide to their employees.
- No Customization: QSEHRAs do not permit nonprofits to differentiate contributions based on employee classifications. This one-size-fits-all approach might not be ideal for nonprofits looking for a more flexible benefits solution. With Take Command, however, nonprofits can leverage expert guidance and tools to design a comprehensive benefits strategy that takes into account the advantages of QSEHRAs, complemented by other benefit options as necessary.
20% of nonprofits lack employer-sponsored health insurance
Approximately 1 in 7 of our clients are nonprofits reimbursing their employees for health insurance with Individual Coverage HRAs (ICHRAs) and Qualified Small Employer HRAs (QSEHRAs) for small nonprofit health insurance.
Take Command Streamlines Nonprofit Health Benefits Management
Despite these limitations, partnering with Take Command can significantly streamline the process of implementing and managing a QSEHRA. Our comprehensive HRA administration service simplifies compliance, setup, and ongoing management, empowering small nonprofits to offer competitive health benefits despite resource constraints. In the long run, these benefits contribute to employee satisfaction, talent retention, and ultimately, the nonprofit's mission success.
Flexible Designs
No more one-size fits all plans! HRA plans for nonprofits can be customized and designed to achieve you or your clients’ goals and are more flexible with what types of plans they will reimburse.
Simple Administration
Take Command will automatically generate the documents your nonprofit employees need and can help them search for and enroll in a plan online.
On-Ramp to Benefits
80% of our small business clients are net new to benefits. An HRA is an affordable, simple way to offer scalable benefits to your team on your budget.
Comparison: HRAs vs. Traditional Group Health Plans for Nonprofits
When it comes to health benefits for nonprofits, understanding the advantages and considerations of different options is crucial. Let's compare HRAs, including ICHRAs and QSEHRAs, with traditional group health plans to help nonprofits make informed decisions.
Advantages of HRAs over Traditional Group Health Plans
- Cost Control: HRAs allow nonprofits to control costs by setting a fixed contribution amount. Traditional group health plans often come with higher premiums, making HRAs a cost-effective alternative.
- Flexibility: HRAs offer more flexibility in benefit design, allowing nonprofits to tailor reimbursement amounts and eligible expenses to better meet the unique needs of their employees.
- Tax Efficiency: HRAs provide tax advantages for both nonprofits and employees, with reimbursements typically being tax-deductible for the organization and tax-free for employees.
Examples of Non profit benefit packages
- HRAs (including ICHRAs): HRAs, with their cost control and flexibility, are particularly advantageous for nonprofits seeking a customized benefits approach. They work well for organizations with diverse employee classes, varying healthcare needs, and a desire to offer personalized benefits.
- Traditional Group Health Plans: Nonprofits with limited administrative resources and employees who prefer the simplicity and comprehensive coverage of a group plan may find traditional group health plans more suitable. This is especially true for smaller nonprofits without the capacity to manage the complexity of HRAs effectively.
Understanding the specific needs, resources, and preferences of your nonprofit is essential in selecting the most beneficial health benefits plan, whether it be an HRA or a traditional group health plan. Evaluating the advantages and potential limitations of each option can guide nonprofits in finding the right fit for their unique circumstances.
Comparison: HRAs for Nonprofits vs. Sharing Ministries
When it comes to health benefits for nonprofits, there are various options to consider. Let's compare Health Reimbursement Arrangements (HRAs), including ICHRAs and QSEHRAs, with Sharing Ministries to help nonprofits make informed decisions.
Advantages of HRAs over Sharing Ministries
- Cost Control: HRAs allow nonprofits to have control over their healthcare costs by setting a fixed contribution amount. In contrast, Sharing Ministries require members to contribute a monthly share, which may vary based on factors such as family size and medical history.
- Flexibility: HRAs offer more flexibility in benefit design. Nonprofits can tailor reimbursement amounts and eligible expenses to better meet the unique needs of their employees. Sharing Ministries often have specific guidelines on what expenses are eligible for sharing, which may limit flexibility.
- Tax Efficiency: HRAs provide tax advantages for both nonprofits and employees. Nonprofits can typically deduct their HRA contributions from their taxes, reducing their overall tax liability. Employees receive HRA reimbursements tax-free, maximizing the value of their health benefits. Sharing Ministries, on the other hand, are not subject to the same tax advantages.
Examples of Beneficial Plans for Nonprofits
- HRAs (including ICHRAs): HRAs provide cost control, flexibility, and tax advantages, making them advantageous for nonprofits seeking a customized benefits approach. They are well-suited for organizations with diverse employee classes, varying healthcare needs, and a desire to offer personalized benefits.
- Sharing Ministries: Sharing Ministries can be a viable option for nonprofits that prioritize community, simplicity, and broader coverage. They may be suitable for organizations with employees who share a common faith and value a faith-based approach to healthcare.
Understanding the specific needs, values, and preferences of your nonprofit is essential in selecting the most beneficial health benefits plan. Evaluating the advantages and potential limitations of each option, whether it be an HRA or a Sharing Ministry, can guide nonprofits in finding the right fit for their unique circumstances.
Making the Choice: Best Health Benefits for Nonprofits
When it comes to selecting the best health benefits plan for your nonprofit, several factors should be taken into consideration. By carefully evaluating these factors, you can make an informed decision that aligns with your organization's size, financial capacity, and the specific needs of your employees.
Factors to Consider When Choosing a Health Benefits Plan
- Size of Organization: The size of your nonprofit plays a significant role in determining which health benefits plan is most suitable. Smaller organizations may find traditional group health plans more manageable, while larger organizations can take advantage of the flexibility offered by HRAs, such as ICHRAs or QSEHRAs.
- Financial Capacity: Assessing your nonprofit's financial resources is crucial. HRAs provide cost control and predictable budgeting, making them attractive for nonprofits with limited financial capacity. Traditional group health plans may require more substantial financial investment but can offer comprehensive coverage.
- Specific Needs of Employees: Understanding the unique needs and preferences of your employees is essential. Consider factors such as demographics, healthcare requirements, and the value they place on choice and flexibility. This information can help determine whether HRAs or traditional group health plans are a better fit.
Guidelines for Choosing the Most Suitable Plan
- Evaluate Cost and Budget: Carefully analyze the costs associated with each health benefits plan, including premiums, contributions, and potential out-of-pocket expenses for both the nonprofit and employees. Consider the long-term financial sustainability and alignment with your nonprofit's mission.
- Assess Employee Preferences: Survey your employees to understand their preferences and needs regarding healthcare coverage. Consider their desire for choice, flexibility, and the value they place on comprehensive coverage versus cost-sharing.
- Seek Expert Guidance: Consult with benefits advisors, insurance brokers, or HR professionals who specialize in nonprofit health benefits. Their expertise can provide valuable insights and help navigate the complexities of different plan options.
- Consider Compliance and Administration: Evaluate the administrative requirements and compliance responsibilities associated with each plan. Assess your organization's capacity to handle the necessary paperwork, reporting, and legal obligations. If needed, consider partnering with a health benefits administration service like Take Command Health for streamlined administration and compliance support.
By carefully considering these factors and following these guidelines, nonprofits can choose the health benefits plan that best suits their organization's size, financial capacity, and the specific needs of their employees. Making an informed decision ensures that your nonprofit can provide valuable, competitive health benefits that support your employees' wellbeing while aligning with your mission and financial goals.
Navigating Employee Benefits for Nonprofits: Requirements, Exemptions, and Tax Credits Explained
Nonprofits are not generally required by law to offer benefits to their employees. However, there are certain requirements and exemptions to consider in the context of nonprofit organizations and their employee benefits. Let's explore these aspects further:
Are nonprofits required to offer benefits?
Nonprofits are not mandated to provide employee benefits, such as health insurance, by federal law. Unlike many for-profit companies subject to the Affordable Care Act's employer mandate, nonprofits are generally exempt from this requirement. However, it's important to note that state laws and regulations may vary, so nonprofits should consult local regulations to ensure compliance.
Are there exemptions for Nonprofits?
Nonprofits may qualify for certain exemptions and alternatives when it comes to employee benefits. For example, some religiously affiliated nonprofits may be exempt from certain contraceptive coverage requirements based on religious objections. It's crucial for nonprofits to understand their legal obligations and any exemptions that may apply to their specific circumstances.
Are there tax credits for nonprofits?
While nonprofits may not be subject to the same tax credit programs as for-profit businesses, there are tax incentives and credits available to help offset costs associated with employee benefits. For instance, the Small Business Health Care Tax Credit is available for eligible small employers, including nonprofits, that provide health insurance coverage to their employees. Nonprofits should consult with tax professionals or benefits advisors to explore potential tax credits and incentives specific to their organization.
It's important for nonprofits to carefully navigate the legal landscape and understand the specific requirements and exemptions related to employee benefits. Consulting with legal and tax advisors who specialize in nonprofit organizations can provide valuable guidance and ensure compliance with applicable laws and regulations. Additionally, exploring tax credits and incentives can help nonprofits mitigate costs associated with providing employee benefits, further supporting their financial sustainability and mission-driven objectives.
Guiding Nonprofits towards the Right Health Benefits Plan with Take Command
Providing health benefits for nonprofits is a critical aspect of attracting and retaining top talent while promoting the wellbeing of employees. However, navigating the complexities of health benefits can be challenging for these organizations. In this article, we have explored the potential solutions offered by HRAs, including ICHRAs and QSEHRAs, for nonprofits. HRAs provide several benefits for nonprofits, such as cost control, flexibility, and tax efficiency.
ICHRAs offer customization and scalability, while QSEHRAs are suitable for smaller organizations seeking simplicity. These HRAs empower nonprofits to design personalized benefits that align with their financial capacity and the specific needs of their employees.
Throughout the decision-making process, nonprofits should carefully evaluate their unique needs and circumstances. Factors such as organization size, financial capacity, and employee preferences should be considered when selecting a health benefits plan. Seeking guidance from experts in the field and leveraging trusted partners like Take Command can provide nonprofits with the knowledge and support needed to make informed decisions.
Take Command offers comprehensive services to help nonprofits navigate the complexities of HRAs, ensuring compliance, simplifying administration, and providing personalized guidance. With their expertise, nonprofits can maximize the benefits of HRAs while mitigating potential drawbacks, enabling them to offer competitive health benefits that contribute to the overall success of their mission.
Our experienced and friendly team is ready to help you on your health benefits journey.
How much will you save with a QSEHRA?
Since QSEHRA reimbursements are tax-free, small business owners can enjoy considerable savings. Check out our QSEHRA tax savings calculator to get a savings estimate.
QSEHRA rules
QSEHRA rules for employers and employees include some standard HRA rules associated with every HRA account. For example, the business owns the HRA, not the employee. Only the company can put money into the HRA, HRA funds do not earn interest, and the business determines the amount contributed to the HRA.
Employees can use QSEHRA money to pay for personal and family medical expenses. The rules for reimbursement from a QSEHRA are found in IRS Publication 502, and any unused money stays with the business. Rollover of funds for employees with a QSEHRA is not guaranteed. Rollover depends on the type of plan and the business's decision about allowing it or not.
→ Deep dive into HRA Account Rules
What are the QSEHRA rules and 2023 QSEHRA limits?
Businesses with fewer than 50 employees can contribute a maximum of $5,850 for individual employees and a contribution of $11,800 for employees with a family. This is an increase over the QSEHRA 2022 limits! Compared to QSEHRA limits 2023, 2023 QSEHRA limits have increased by $400 for individual employees and $750 for employees with a family annually.
Offering personalized benefits for your small business is possible with Take Command. Our qualified small employer health reimbursement arrangement administration software makes QSEHRA administration simple and easy.
Here’s what you can expect from your QSEHRA when you work with a skilled HRA administrator like Take Command.
Flexible Designs: Customize a plan that fits the needs of you and your mixed workforce employees. Employers can choose different reimbursement amounts for each employee class based on different class distinctions.
Simple Administration: Take Command helps you with the design and management of your QSEHRA. This includes process, compliance, reporting, employee communication, and employer support. We’ll ensure you know the QSEHRA rules, 2023 QSEHRA limits, and what QSEHRA funds can be used for.
No Minimum Contribution Requirements: You can offer different reimbursement allowances based on family status and there are no minimum 2023 QSEHRA limits or minimum contribution requirements, only a maximum limit.
Tax-advantaged: QSEHRA is completely tax-free for employers and tax-free for employees with minimum essential coverage (MEC).
Begin designing your QSEHRA plan today and be set up in minutes
You could start reimbursing your employees tax-free sooner than you think.
QSEHRA requirements
To set up a QSHERA, a small business must meet two QSEHRA requirements to be eligible. The employer QSEHRA requirements are:
- Be “small”: The business or non-profit must be a “small employer” in the eyes of the IRS, meaning it must have 50 or fewer full-time employees to meet QSEHRA eligibility.
- Not have a group health plan: The small business or non-profit cannot have a traditional group health plan.
To qualify for QSEHRA tax-free reimbursements, employees must meet two QSEHRA requirements to be eligible:
- Have individual health insurance coverage. Plans must provide Minimum Essential Coverage (MEC) as defined by the IRS in Section 106(g).
- Submit claims for reimbursement. Employees need to prove their expenses met the QSEHRA requirements for qualified health expenses.
ICHRA vs QSEHRA
ICHRA and QSEHRA are both awesome tax-advantaged tools to consider when searching for a small business health insurance solution for your company. There are a few key differences, like what kind of business qualifies, reimbursement limits or maximums, employee eligibility, and more. Here’s a helpful blog complete with a side-by-side comparison of ICHRA vs QSEHRA.
See the chart ICHRA vs QSEHRA.
QSEHRA pros and cons
There are always upsides and downsides to consider when deciding which healthcare plan to choose. It really depends on the specifics of your situation and the plan you choose. Let’s review some of the general pros and cons of QSEHRA plans.
In a nutshell, there are way more pros than cons to QSEHRA. Here’s a few.
- Tax efficiency
- Flexible design
- Budget control
- Optimized benefits
- You can get out of the health insurance risk management game
Advantages of QSEHRA plans:
Cost savings: Employers control how much is spent on health coverage and decide the maximum reimbursement allowances. And any unused HRA account funds can roll over at the employer's discretion annually; otherwise, the funds stay with the employer.
Tax advantages: Tax benefits for employers and employees. Employers can deduct reimbursements made to employees through QSEHRA, reducing their overall tax liability. And reimbursements given to employees through QSEHRA are not considered taxable income, so employees won’t have to pay taxes on reimbursements.
Greater plan flexibility: Employers can customize the plan and choose the type of coverage they want to offer, the amount of the reimbursement, and the eligibility requirements. Employers can also choose to offer different levels of coverage to different classes of employees.
Health benefit choice: Employees choose the individual plans and doctors that work best for them and can use QSEHRAs for medical and dental expenses, prescriptions, annual exams, birth control medications, and more.
Risk de-management: Employers no longer need to worry about factoring managing employees’ health risks into the business strategy.
Plan portability: Employees can keep their individual health insurance plan and don’t have to lose health coverage tied to a specific job.
ACA compliance: QSEHRA also helps employers comply with the Affordable Care Act (ACA). The plan meets the ACA’s minimum requirements for employer-sponsored health plans, allowing employers to avoid potential penalties.
Administration simplicity: QSEHRA doesn’t require employers to manage a large group insurance plan, which can save employers time and money by streamlining their administrative processes.
Potential QSEHRA Disadvantages
Non-transferable funds: QSEHRA funds stay with the employer if the employee leaves the company. The good news is that the employee keeps the health insurance plan they selected.
Cosmetic procedures not covered: Elective cosmetic procedures like teeth whitening aren’t covered. Most group plans don’t cover elective cosmetic procedures, either.
Limited coverage: Provider options may be limited based on the insurance market per geographical region.
QSEHRA eligible expenses
When you set up your QSEHRA, you’ll want to ensure your employees know what qualifies for QSEHRA reimbursement. QSEHRA-eligible expenses include a variety of things that may include a health insurance premium, prescription and non-prescription drugs, personal hygiene products, doctor visits, dental and vision care, mental health care, and more, as long as the employee has minimum eligible coverage (MEC). Make sure that the expenses follow the guidelines by IRS Publication 502 Medical and Dental Expenses.
Here’s a full list of QSEHRA-eligible expenses for employees in 2023.
How to set up a QSEHRA
When you work with a QSEHRA third-party administrator like Take Command, we ensure your QSEHRA administration is straightforward and simple. Sure, you could do a self-administered QSEHRA, but without a skilled HRA administrator in your corner – that includes things to make it easy on you, like QSEHRA administration software and QSEHRA plan document template – you’re in for a lot of work and headaches.
So, pro tip, go with a QSEHRA third-party administrator when thinking about how to set up a QSEHRA.
Here’s how to set up a QSEHRA.
Employees select their preferred health insurance plan, pay for health care expenses upfront then the employer reimburses them. Employers can offer health care benefits without being tied to a group plan and employees gain control of where they spend their money and chose the providers that they want.
How to set up QSEHRA in 4 simple steps
- The employer designs their QSEHRA plan. Pro tip – it’s even easier when you work with an experienced partner like Take Command.
- Employees purchase their preferred health insurance plan. Take Command even helps them do it and makes it super easy with tons of employee resources, including our window shopping tool.
- After employees purchase their plans of choice, they can then submit eligible reimbursement claims to the employer.
- The employer reimburses employees for all valid reimbursement claims.
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Susanne is a copywriter specializing in the health and wellness industry. Before starting her own business, she spent nearly a decade at a marketing agency doing all of the things – advisor, copywriter, SEO strategist, social media specialist, and project manager. That experience gives her a unique understanding of how the consumer-focused content she writes flows into each marketing piece. Susanne lives in Oklahoma City with her husband and two daughters. She loves being outdoors, exercising and reading.
