How Nonprofits Can Tackle the Rising Costs of Employee Health Insurance

Nonprofits often employ experienced, highly skilled people — talented employees who could otherwise find work in the private sector but believe in the nonprofit's mission and values. These employees will often compromise on salary to do meaningful work, but they do expect adequate benefits and healthcare. For nonprofit leaders — who always need to keep a close eye on expenses — finding and paying for healthcare can be the most stressful part of the job. 

The rising cost of group health insurance puts nonprofits between a rock and a hard place — unable to provide the coverage their employees need without paying a price they can’t afford. Every year, nonprofit leaders face the uncertainty of renewing their group health insurance plan. Some nonprofits see renewal rate increases as high as 20%, leaving the organization with no choice but to pass on the costs to their employees. 

As the renewal uncertainty comes to a boiling point, some nonprofit leaders are taking a new approach: letting go of their group health plans in favor of giving their employees choices in the individual market. Using health reimbursement arrangements (HRAs) — which allow employers to reimburse employees for plans purchased through the individual marketplace — these nonprofits have been able to provide employees with quality healthcare without taking on the enormous expense of group coverage. 

Why Healthcare Costs Keep Nonprofit Leaders Up At Night

Nonprofits face a set of common challenges. Organizations must recruit, train and retain talented employees, while also navigating legal, regulatory and compliance issues unique to the space. Budgets are always tight and dependent on grants and donations. 

Those issues keep nonprofit leaders up at night. So do climbing program costs, turnover, understaffed and under-resourced teams, lagging donations, and burnout among employees. Turnover is particularly challenging: the annual turnover rate for nonprofit organizations is 19%, compared to the national average across industries of 12%. 

The outlook for the near future isn’t much brighter. According to a 2020 Nonprofit HR survey, 45% of nonprofit employees had planned to find a new job by 2025, with many of them headed to the private sector. Budget constraints prevent two in three nonprofits from raising salaries, hiring more staff or upgrading equipment — steps that might help leaders keep employees on board. 

Offering health insurance is key to retaining and recruiting top talent — especially the highly skilled and educated employees nonprofits need. However, only 47% of nonprofits offer healthcare to their employees. 

Group health plans simply aren’t built for nonprofits. The plans are too expensive, struggle to accommodate remote or part-time employees, and have rigid participation requirements. Nonprofit leaders don’t have the time to manage group plans, nor can they afford the uncertainty of renewal costs that increase every year. If a single employee or one of their dependents gets sick or has an accident, the overall group rate skyrockets as a result. 

The Benefits of HRAs

Fortunately, group health plans aren’t the only option. HRAs, through which nonprofits give their employees funds to spend on the individual market, allow organizations to escape the cycle of expensive plan renewals. In some cases, this model allows nonprofits to offer employees health insurance for the first time. Employers simply set an allowance for healthcare and employees choose the plan that best fits their needs. 

For nonprofits, HRAs mean savings and cost control. Employees who choose an HRA join the country’s largest risk pool — the 20 million Americans who purchase insurance on the individual market. As a result, there is no risk of unexpected price increases due to an expensive diagnosis, nor do leaders have to worry about participation requirements because the plan stays in place regardless of who enrolls.

For employees, HRAs mean quality coverage. The individual marketplace offers Affordable Care Act-compliant, health savings account-compatible plans across multiple carriers and tiers. Employees choose the level of coverage that meets their needs and determine how much they want to pay for health benefits, instead of having to pay for more or less coverage based on the health status of their coworkers. 

There are two types of HRAs for businesses: a qualified small employer HRA (QSEHRA) for nonprofits with fewer than 50 employees, and the individual coverage HRA (ICHRA) for nonprofits of any size. By shifting from group coverage to individual plans, nonprofits can take control of their budgets and return their focus to the organization's actual mission.

An HRA Case Study

Leslie Blake — the executive director of Big Brothers Big Sisters of McHenry County, which supports at-risk youth, including those living in single-parent households, growing up in poverty or coping with parental incarceration — oversees multiple responsibilities while operating on an extremely tight budget. Therefore, the nonprofit had never been able to offer health insurance to employees. 

Struggling with both employee recruitment and retention, Blake found the lack of health benefits narrowed the pool of applicants to mostly those who were covered under a partner’s plan — impacting her ability to hire talent from diverse backgrounds. The nonprofit was also seeing a generational shift as younger staffers pushed for new and expanded benefits.

Blake had considered group health plans before, but the initial cost was high and only going to increase, so she turned to an HRA to solve the nonprofit’s health benefits problem once and for all. A donor agreed to fully fund the HRA investment for multiple years, and Blake chose a QSEHRA because of the organization’s size. 

Under the HRA, each employee picked the health benefits that worked best for them. While the majority of employees likely would not have taken part in an expensive group plan, 100% of employees, including several employees who previously didn’t have health insurance, utilized the nonprofit’s HRA. Employees spent 97% of monthly stipends — with 25% of staff paying for the healthcare costs of their entire family.

Nonprofits of all sizes are using HRAs to boost recruitment and keep their mission-critical employees happy and healthy. Nonprofits are always quick to support the families they serve, but need to support their own employees as well. HRAs help nonprofits extend their missions further, empowering the people who empower people. 

The preceding post was provided by an individual unaffiliated with NonProfit PRO. The views expressed within do not directly reflect the thoughts or opinions of NonProfit PRO.