Choosing the Right Health Plan
Providing health insurance coverage to employees often makes a great deal of financial sense, even for smaller nonprofits.
“It absolutely benefits a small to midsize nonprofit to offer health insurance coverage to its employees,” says Amy Schiffman, co-founder and principal at Giving Tree Associates. “It is very difficult to attract competitive candidates without it because most of the larger nonprofits do offer it.”
Health insurance both improves recruitment and makes it easier to retain existing talent. Good employees are hard to find, and they can be lured away by superior benefits packages from competing organizations. Health insurance is a tempting perk that can help your nonprofit hold on to valued staff members, thus reducing employee turnover and retraining costs.
“Most midsize nonprofits are now offering this benefit and smaller nonprofits are catching up, or tending to offer compensation packages that allow for employees to purchase their own health insurance if it is not part of the offer package,” Schiffman explains.
Impact of Health Care Reform
The Affordable Care Act has greatly reshaped the employee health insurance landscape, offering many small organizations the chance to obtain health insurance coverage for their employees at a discounted cost, but also imposing certain regulatory requirements.
“Nonprofits health plans now have to be categorized into ‘metal’ tier levels based on their actuarial values: platinum, 90 percent; gold, 80 percent; silver, 70 percent; bronze, 60 percent,” explains Eric Laughlin, manager of broker services at the New York Council of Nonprofits’ Council Services Plus subsidiary.
Under the ACA, out-of-pocket expenses are also capped at certain levels. “For example, some plans around the platinum level will have expenses capped at $2,000 for an individual and $4,000 for family coverage,” Laughlin says. “Once you get to the bronze-level plans, they are capped around $6,350 for an individual and $12,700 for a family. Waiting periods for new hires are also capped at 90 days.”
Health insurance exchanges are probably the most visible aspect of the ACA. New York’s online health insurance exchange is known as the New York State of Health.
Nonprofits that purchase health insurance for their employees may become eligible for a small business tax credit. “This is only available if the nonprofit purchases their health insurance through the New York State of Health,” Laughlin notes. “In order to qualify for the tax credit, the nonprofit must cover at least 50 percent of the premium, employ fewer than 25 full-time-equivalent staff, and pay an annual average wage of less than $50,000.”
Health insurance plans for nonprofits fall primarily into two major categories:
•Group health insurance plans: Nonprofits often qualify for the same group health insurance plans offered to small businesses. Group health plans generally fall into two categories: traditional indemnity plans and managed care plans. Indemnity plans offer more flexibility but require higher out-of-pocket costs, while managed care options restrict the range of health service providers, but reduce expenses and paperwork. Most small to midsized nonprofits opt for a managed care plan. “Nonprofit organizations typically offer platinum- and gold-style EPO (exclusive provider organization) plans to their staff, which have some of the lowest out-of-pocket costs,” Laughlin notes. “There are also preferred provider plans available for organizations that need an out-of-network solution for their staff.” Silver and bronze EPO plans offer cost savings that can be paired with alternative funding arrangements such as health savings accounts, flexible spending accounts and health reimbursement arrangements.
•Defined contribution plans: Under these plans, employers provide employees with a specified amount of money to purchase their own insurance plans. The primary benefit to employers is the ability to manage costs.
“Offering a group health plan through the employer can take more time and effort to implement and administer,” Laughlin notes. However, group plans are more structured and provide clearly defined benefits that are easy to explain to employees. “You can run open enrollment meetings with the help of a broker fairly easily, so that employees understand what they are enrolling in,” he adds.
Defined benefit plans, by contrast, save time and money for the employer, but can be more problematic for employees. “Employees generally need guidance when it comes to their benefits,” Laughlin explains. “They may enroll on a plan only thinking about what the premium is going to cost them right now, and not necessarily what it will cost them when and if services are needed. It puts some skin in the game for employees, which if they aren’t careful, could come back to bite them later on.”
Finding the Right Broker
Navigating the rules imposed by the ACA can be complicated. Small to midsized nonprofits may wish to seek out the advice of an insurance broker in order to ensure the choices they make fully comply with ACA requirements.
“Nonprofits should make sure that they are working with someone who is knowledgeable about the product they need,” Laughlin says. “The broker should be able to explain the differences between all different types of plan options and carriers, not just one carrier’s offerings.”
For nonprofits, the best broker is one that has worked with organizations of a similar size and mission. “Every broker will tell you that they are the best at what they do,” Laughlin advises. “So ask around. Contact local nonprofits and ask who they use and if they recommend them.”