For small nonprofits in Texas, offering affordable and comprehensive health insurance can be a major challenge. Rising costs, limited options, and ever-evolving regulations make navigating health coverage a difficult task. But there are solutions. In this guide, we’ll break down some of the best health insurance options available for smaller nonprofits, including a newer option, ICHRA, that is gaining attention.
The Health Insurance Struggle for Smaller Nonprofits
Texas is home to around 150,000 nonprofits, but most of them are small, employing fewer than 25 people. The soaring costs of health insurance have made it increasingly difficult for these smaller organizations to provide coverage, with premiums increasing by over 400% in the last decade. As a result, only about 18% of small nonprofits are able to offer group health insurance to their employees.
So, what options do small nonprofits in Texas have when it comes to providing health coverage?
Health Insurance Options for Texas Nonprofits
Several health insurance options are available to nonprofits, each with its own pros and cons. The most popular options for small nonprofits include fully-insured plans, level-funded plans, offering extra cash, and ICHRA (Individual Coverage Health Reimbursement Arrangement). Let’s take a deeper dive into each.
1. Fully-Insured Group Health Plans
Fully-insured group health plans are a traditional option where the nonprofit works with a broker to select a plan, then pays a fixed premium to the insurer. The insurance company handles claims for the enrolled employees.
Advantages:
- Predictable Costs: Monthly premiums are fixed, making budgeting easier.
- Comprehensive Coverage: Plans are state-regulated, ensuring that employees receive a standard level of benefits.
Disadvantages:
- Higher Premiums: This option is typically the most expensive.
- Limited Flexibility: Most small nonprofits are offered only one plan for the entire team.
- High Participation Rates: Group plans usually require 60-70% of employees to enroll, which can be tough for small organizations.
- Employer Contribution: Insurers often require the employer to cover at least 50% of premiums.
2. Level-Funded Health Plans
Level-funded plans work like fully-insured plans, but part of the premium is placed in a claims fund. If claims are lower than expected, the nonprofit may receive a refund. However, if claims exceed the amount collected, premiums could rise.
Advantages:
- Potential Savings: If claims are low, the nonprofit could get some premium money back.
- Lower Costs for Healthy Employees: Premiums are lower if employees have fewer medical claims.
Disadvantages:
- Unpredictable Costs: If claims are high, premiums can increase.
- High Participation and Contribution Requirements: These plans require similar levels of participation and premium contributions as fully-insured plans.
- Limited Flexibility: These plans often offer just one option for the entire organization.
3. Extra Cash in Paychecks
Instead of offering a health plan, some nonprofits choose to give employees extra money in their paychecks to cover health insurance. While this seems like an easy solution, it doesn’t always achieve the desired results.
Advantages:
- Simple: Employers just add extra cash to paychecks.
- Predictable: Employers know exactly how much they are offering each month.
Disadvantages:
- Missed Value: Employees may not realize that the extra money is meant for health insurance.
- Taxes: The extra cash is taxable, which reduces its value.
- No Guarantee of Health Insurance: Employees may not use the extra money for insurance, defeating the purpose of the benefit.
4. ICHRA (Individual Coverage Health Reimbursement Arrangement)
ICHRA is a newer health benefit option that allows employers to offer a fixed, pre-tax allowance for employees to purchase individual health plans on the marketplace. This model offers flexibility for both the employer and the employee.
Advantages:
- Cost Control: Employers can set a fixed, affordable monthly contribution.
- Employee Flexibility: Employees can select the health plan that fits their needs.
- Pre-Tax Contributions: Contributions are tax-free, stretching the budget further than additional salary would.
- Simple Setup: ICHRA enrollment is quick and easy, typically requiring just a few minutes.
Disadvantages:
- Potential Confusion: Employees may need assistance navigating the marketplace to select the right plan, although some providers offer support services.
Comparing Small Group Health Plans vs. Individual Plans
Many small businesses and nonprofits may be surprised to learn that small group fully-insured health plans can be significantly more expensive than individual plans available on the health insurance marketplace. For instance:
- In Houston, small group plans are about 8% more expensive than individual plans on the marketplace.
- In Dallas and Austin, small group plans are about 9% less expensive than individual marketplace plans.
- In San Antonio, the costs are about the same.
What’s the Best Option for Small Nonprofits in Texas?
Given the rising costs and limited options, small nonprofits in Texas must consider all available health insurance options to meet their budget and employee needs. Here’s a summary:
- Fully-Insured Group Health Plans are a traditional option but can be costly and lack flexibility.
- Level-Funded Health Plans offer potential savings but come with unpredictability and high participation requirements.
- Offering Extra Cash is simple but may not effectively address employees’ health insurance needs.
- ICHRA is a modern, flexible, and cost-effective solution, offering employees the freedom to select their health plans while keeping costs under control.
For small nonprofits in Texas, understanding the pros and cons of each option is crucial to selecting the best health insurance plan. With rising premiums and fewer options available, ICHRA presents an innovative way to meet employee health needs without breaking the bank.
