Healthcare for Small and Mid-Size Organizations

The Affordable Care Act of 2010 (and its subsequent revisions) created no small amount of change and confusion for employers wishing to provide health insurance for their employees. Many practices that were common prior to the passing of the ACA are no longer allowed or cost-effective. Given the recency of these changes, the healthcare landscape remains difficult to navigate.

Employers with 50 or more full-time employees are required to sponsor a group healthcare plan. But what about churches or nonprofits with just a handful of employees? What is the best and most cost-effective way for an organization to care for its employees while being mindful of cost?

In the absence of an employer-sponsored plan, Federal or state healthcare marketplaces established by the ACA are a great way for employees to get coverage at an affordable rate. Plans purchased through a healthcare marketplace may not offer as wide of a network as those secured through a broker, but are generally equivalent in coverage offered. Quality coverage coupled with substantial tax credits (especially for clergy) usually makes the marketplace the most cost-effective place for an individual to purchase health insurance.

Because organizations with fewer than 50 employees are not required to sponsor a group plan—and because the marketplace is so cost-effective—Auxilio often encourages our church/nonprofit partners to provide a healthcare stipend to their employees that may be used to purchase health insurance or cover healthcare costs.

Why a stipend?

No employer may reimburse an employee’s privately-held insurance premiums tax-free (even for just one employee). Providing a healthcare stipend in the form of additional taxable wages shows that your organization is committed to providing healthcare benefits to its employees, even if a group plan is not in place. Although a stipend is taxable income to the employee, it is distinct from an employee’s salary. This provides your organization with the flexibility to apply that cost toward a group insurance plan in the future, or to increase/decrease the stipend independent of the employee’s base wages. Per IRS regulations, employees cannot be required to use a stipend for healthcare expenses, but may be encouraged to do so.

How much should a stipend be?

Although there are no regulations governing the amount of a stipend or how that figure should be determined, Auxilio recommends that you consider the following when establishing a healthcare stipend for your employees:

1. What is the cost of healthcare?

Although it is not advisable to base healthcare stipends on the exact amount an employee pays for coverage*, a general understanding of the cost of healthcare premiums should inform how much stipend to pay an employee. 

2. How much are we able to pay?

Commitments to pay 100% of an employee’s privately-held health insurance mean unexpectedly high costs when an employee picks a platinum plan from the marketplace, or elects to purchase a plan through a broker that is not eligible for tax credits. An organization should consider how much it wants to invest in employee healthcare each year when budget planning. The employer should set a standard stipend for all eligible employees, which should be independent of the employee’s actual cost of coverage.

3. Is our commitment to our employees fair and sustainable?

Regardless of their individual healthcare needs, employees of similar classifications should be treated fairly. There is no regulation requiring fair and equal administration of stipends, but we encourage our partner organizations to establish a policy that dictates stipend amounts for different classes of employee. For example, all full-time employees who are married with children receive $1000/month, while all full-time employees who are single receive $400/month. Such standardized policies are easy to convert if your organization ever moves to a group-sponsored plan.

Uh-oh, am I doing it wrong?

Regulations regarding healthcare, reimbursements, and stipends are ever-changing and often confusing. Trusted sources often provide incorrect or incomplete advice based on outdated information. Because of this, the IRS often treats noncompliance with grace. However, efforts should be made to move toward a compliant, sustainable policy.

Talk to your Auxilio Partner Strategist about ensuring that your policies are compliant and sustainable.

*Tying an employee’s stipend to their actual cost of coverage infers that the stipend must be used for a particular healthcare plan, which is noncompliant with IRS/ACA regulations. Also, additional compensation in the form of raises or bonuses may impact marketplace tax credits when the employee files their tax return, effectively increasing their premium.