Navigating health insurance is already a headache. Throw in over 60 hours of research and administration, and you've got yourself a Herculean task. It's not like nonprofit admins have spare time to become health insurance pros on top of everything else.
Yet, access to employee health insurance is a big deal. Texas alone is home to 150,000 nonprofits. (Everything IS bigger in Texas.) And the vast majority of these organizations have fewer than 25 employees.
So, what's on the table for smaller-sized nonprofits looking to provide health insurance?
When it comes to health insurance options, four main strategies stand out: Fully-Insured Health Plans, Level-Funded Health Plans, Paying Cash, and a Pre-Tax Fixed Benefit called an Individual Coverage Health Reimbursement Arrangement (ICHRA). Each option has its own set of advantages and disadvantages. Let’s take a look.
How smaller nonprofits are left out
Smaller nonprofits, especially those with fewer than 20 employees, are in a tight spot trying to find health options that are both affordable and comprehensive, all while going head-to-head with bigger orgs that can offer more enticing benefits packages. Health insurance costs have increased over 400% over the last decade, keeping up with rising costs and offering a competitive benefits package is becoming near impossible.
It's probably why only a small chunk of nonprofits, about 18% according to this research, manage to offer a group health benefit.
1. Fully-insured group health insurance plan
For many decades, small organizations (nonprofit and for-profit small business), have leaned towards fully-insured plans. In this setup, the employer generally works with a broker to find a group health plan and then pays a fixed premium to the insurance company, which then handles all the claims from enrolled employees.
Advantages:
- Predictable monthly premium costs. These plans might be the most expensive (see disadvantages) but you do know your premiums every month.
- Comprehensive coverage options. Because these plans are regulated by the state, insurers are required to provide a certain standard of benefits so that all employees.
Disadvantages:
- Often higher premiums in comparison to other options. In fact, this tends to be the most expensive option of all the ones available.
- Less flexibility in tailoring plans to specific needs. Small nonprofits frequently are offered one option for everybody.
- High minimum participation rates. Enrolling in a group plan means that on average, at least 70% of employees must enroll, which can be insurmountable for many small businesses.
- High minimum premium contribution. Group health insurance carriers tend to require a minimum of 50% premium contribution, which can be a high bar for some nonprofits, especially when we see double digit rate hikes year over year.
2. Level-funded group health insurance plan
While they work like a traditional fully-insured health insurance plan, part of the premiums you pay goes into a claims fund to cover health expenses for employees. If there's money left over at the end of the policy term, it could get credited back to the employer, which means potential savings for the nonprofit. On the flip side, if claims go over what was collected, premiums can shoot up. That’s why health insurance companies usually ask employers to go through underwriting.
Advantages of level-funded health plan:
- Potential refunds if claims are low. That makes the potential for savings better than a fully insured health plan.
- If you have healthy employees, your costs tend to be lower. Health insurance carriers selling level-funded health plans generally require underwriting which means they’ll ask you and your employees questions gauge your risk.
Disadvantages of level-funded health plan:
- Your employees have to remain healthy. The cost-advantage only exists if your employees don’t get sick. One expensive claim can cause rates to shoot up the next year.
- High minimum participation rate and premium contribution. Just like a fully-insured health plan rolling in a group plan means that on average, at least 70% of employees must enroll and the employer must contribute 50% toward their premiums
- Less flexibility in tailoring plans to specific needs. Small nonprofits frequently are offered one option for everybody.
3. Extra cash in the paycheck
After hitting a lot of brick walls, smaller nonprofits often give up the search for a group health plan and opt to give the extra cash to employees via their paychecks. It is a well-meaning option and there are some helpful upsides, but overall, this option doesn’t often translate into the intended value.
Advantages of money in lieu of insurance:
- It’s easy to do and budget for. All an employer has to do is add extra money to a paycheck.
- It’s also predictable — they give exactly what they can afford.
Disadvantages of giving employees cash:
- Missed value. Employees don’t always understand that they’re receiving cash for health insurance and it just blends into their wages.
- Taxes eat up a lot of what you give. Despite no state income tax, employees in Texas will still have 15.3% taken out of that extra cash for FICA, and another 22% for federal income taxes.
- Employees may not get your desired outcome — health insurance. Do employees even end up using the money for insurance? There’s no way to know, so they may not even get the benefit the cash is intended for..
3. Pre-tax, fixed benefit (AKA: Individual Coverage Health Reimbursement Arrangement or ICHRA)
The ICHRA model is a newer option that allows employers to reimburse employees for their health insurance premiums up to a fixed amount. This unique type of group policy provides flexibility to the nonprofit administrator and their employees — employees can choose their health plans, and the admin can set a budget that they can afford.
Advantages:
- Flexible and personalized for employees. Instead of a one-size-fits-all health plan that barely fits anyone, employees can pick a health plan from the health insurance plan that fits their needs.
- Controlled costs for the non-profit. The administrator can set a monthly benefit of pre-tax money that they can afford.
- The money goes further. Since the contribution is pre-tax, the benefits dollars go a lot further for employees then giving them additional dollars in their paycheck.
- It takes 10 minutes to set up. (Or at least StretchDollar’s ICHRA enrollment does.) Just pick a budget, fill out some online paperwork and you’re done.
Disadvantages:
- Health insurance is confusing and your employees may need help. Some ICHRA policy providers, like StretchDollar, offer one-on-one brokerage services to guide employees but this isn’t always the case.
What about the cost: Small group versus individual marketplace insurance
A decade ago, small group health plans were substantially cheaper than buying an individual health plan. Fast forward today, and you might be surprised to learn that the price of a small group health plan is relatively the same as individual plans on the health insurance marketplace. Let’s take a look at Texas.
- In Houston, small group plans cost about 8% more than individual health plans on the marketplace.
- In Dallas and Austin, small group plans are about 9% less than individual health plans.
- San Antonio the cost is about the same.
Here's a snapshot of pricing:
Bottomline: What’s the best health insurance for nonprofits in Texas?
For small nonprofits in Texas, figuring out health insurance is like walking a tightrope between tight budgets and snagging great talent. We've got three main options to play with here. Fully insured health plans, level-funded health plans, extra cash and finally, ICHRAs.
Picking the right one depends on what your nonprofit needs. Bottom line: Dealing with health insurance for small nonprofits is still a juggling act of affordability and complexity. But knowing your options is the first step to finding a solution that matches your goals and keeps your team happy. And as the nonprofit scene keeps changing, there'll be even more tricks up our sleeves to make sure even the tiniest orgs can attract the talent they need to thrive.
Interested in learning more about ICHRA group health benefits for your nonprofit? Contact us here or jump right in and get started.
