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church health insurance

Church health insurance and health insurance for pastors

Navigating health insurance for church employees and pastors requires understanding various options and regulatory considerations. This guide outlines viable health coverage solutions for religious organizations, including HRAs and direct sponsorship of individual health plans, to help church leaders make informed decisions that best serve their teams and support their mission.

Tight budgets, high turnover, burnout, and a community with diverse needs—does that sound like your church? Good news—we've got a solution.

HRAs are becoming more popular among pastors and churches as group plans become more expensive. This arrangement is one way churches can offer cost-effective group health coverage for church employees.

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Are churches required to provide health coverage?

In the United States, churches with fewer than 50 full-time equivalent employees are not mandated by law to provide health insurance. However, federal legislation changes the requirements for those with more than 50 full-time equivalent employees.

The Affordable Care Act (ACA) and Churches

The Affordable Care Act (ACA) introduces specific mandates for applicable large employers (ALEs)—a category that includes churches and religious organizations once they exceed the 50 full-time equivalent employees threshold. These organizations are then subject to the ACA's employer-shared responsibility provisions. This means they must offer affordable health insurance that covers minimum essential coverage to their full-time employees and dependents, or they may incur penalties.

The Case for Providing Insurance in Smaller Churches

Smaller churches that fall below this 50-employee threshold have no legal obligation to provide health insurance. Nonetheless, there are compelling reasons to consider offering health benefits:

  • Recruitment and Retention: Offering health insurance can make a church more attractive as an employer. It's a significant factor for many individuals when choosing an employer, helping attract and retain talented staff dedicated to the church's mission.
  • Employee Wellbeing: Providing health insurance demonstrates a commitment to the well-being and security of the church's employees and their families. It's a tangible way to care for the team that supports the church's operations and mission.
  • Financial Prudence: Some health insurance options for small employers, including churches, can be more affordable than anticipated. Exploring these options can benefit the church and its employees financially, offering tax advantages and potentially reducing healthcare costs.
  • Community and Mission: By ensuring the health and stability of its staff, a church can maintain a solid foundation to serve its congregation and the broader community effectively. Healthy employees are more likely to be engaged and productive, contributing positively to the church's mission.

Churches and religious organizations must seek advice from legal and financial experts to navigate their specific obligations and explore various employee health insurance coverage options. Understanding these aspects can aid in making informed decisions that align with the church's values and financial capabilities while ensuring compliance with applicable laws.

What types of health insurance are available for church employees?

Churches seeking health benefits for their employees have several options, each with its advantages and considerations. Understanding these options can help church leaders make informed decisions that best suit their organization and staff. Here’s an overview of the health insurance types available:

HRAs (Health Reimbursement Arrangements)

HRAs are employer-funded plans that reimburse employees for medical expenses and, in some cases, insurance premiums. This arrangement offers flexibility and can be a cost-effective solution for churches. It allows employees to choose plans that fit their needs, while churches control costs by setting reimbursement limits.

QSEHRA (Qualified Small Employer Health Reimbursement Arrangement)

Specifically designed for small employers, including churches with fewer than 50 employees, QSEHRAs allow for reimbursement of medical expenses and premiums up to a specific limit. This type of HRA is particularly appealing for small churches as it offers tax advantages without the need to manage a traditional group health insurance plan.

ICHRA (Individual Coverage Health Reimbursement Arrangement)

ICHRA is a more flexible version of the HRA that churches of any size can offer. It allows employers to reimburse employees for their health insurance premiums purchased in the individual market. This flexibility makes ICHRA an attractive option for churches that want to offer benefits tailored to the diverse needs of their employees.

Group Coverage

While not as flexible as HRAs, traditional group health insurance plans are still an option for churches. These plans involve the church purchasing a single policy that covers all eligible employees. While group coverage can offer comprehensive benefits, it often comes with higher costs and less customization than HRAs. Additionally, managing group coverage can be complex, requiring significant administrative effort from church staff.

Considerations for Group Coverage

While group health insurance is a well-known option, it's essential to be aware of its potential drawbacks:

  • Cost: Group plans typically come with high premiums, which can be a significant financial burden for churches, especially smaller ones.
  • Complexity: Managing a group plan involves navigating renewals, changes in coverage, and administrative tasks, which can be cumbersome for churches with limited administrative resources.
  • One-size-fits-all: Group plans offer less personalization, meaning employees have less control over their coverage options. This can be a disadvantage for employees with specific healthcare needs.

Exploring the range of health insurance options available allows church leaders to weigh the benefits and considerations of each. By carefully assessing their church’s and employees’ needs, they can select the insurance solution that offers the best balance of flexibility, cost, and coverage.

Can a church provide an individual health plan for a pastor?

A church can provide individual health insurance to a pastor if they are the sole employee. When there are other full-time employees, those employees would also need to be offered a health insurance plan.

With an HRA, reimbursing a pastor for an individual health plan (as well as the other employees, if applicable) is a tax-free and flexible way to do this. With a group plan, you'd need more than one person; for small churches, this will almost always be cost-prohibitive.

Can a church reimburse a pastor for health insurance? 

Yes! Offering an HRA is a great, tax-free way for a church to offer health care to their pastor. Offering health insurance benefits helps churches recruit and retain talented pastors, ensures that pastors take care of themselves, and protects them against the financial challenges of high medical claims. 

Affordable health insurance for churches and pastors 

The most important thing about HRAs is that they allow churches to reimburse employees for individual health insurance premiums and medical expenses tax-free.

This is a big deal because churches can now offer "big company" employee benefits but with a lot less hassle. 

It also enables churches to adopt a strategy called "defined contribution" which is much simpler than hassling with one-size-fits all group health insurance plans and is proven to be much more efficient, affordable, and predictable.

There are two main types: Qualified Small Employer HRAs, specifically or small businesses, and Individual Coverage HRAs, for companies of all sizes without any contribution limits. 

Churches can now give their employees a fixed dollar amount each month, say $200, and each employee can then shop for the plan that fits his or her needs the best. Sally can choose a Blue Cross plan for her doctor, Roger can get Aetna to cover his prescription, and Betty can stay on her husband's group plan.

Gone are the days of comparing quotes from each insurance company or the headache of trying to get everyone what they want without breaking the budget! And employees end up happier, too.  

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HRA Benefits for Churches: Predictable costs 

Defined contribution health benefits allow churches complete control over the costs of the health benefits, creating predictability with the health benefits budget. For example, with defined contribution health benefits: 

  • There are no minimum amounts to contribute (the church decides the amounts of the defined contribution allowances). 
  • Costs are not incurred until employees receive reimbursement  
  • Pre-funding accounts are not required 
  • Unused funds stay with the church 

Does your church qualify for an HRA?

The following criteria must be met to participate in the Health Reimbursement Arrangement.   

  • The church must make the same HRA contributions for all eligible employees. However, amounts may vary based on family status or employment status, such as clergy/pastor, full-time staff, or all staff. 
  • Employees use the HRA to reimburse health insurance premiums and other out-of-pocket medical expenses tax-free. 
  • Employees participating in an HRA are required to have minimum essential coverage and a quality health plan to receive HRA reimbursements.   

Take Command is here to help 

Does all of this sound complicated? Expensive? Here's some good news. With our help, this can be easy Our platform will handle all the accounting and legal legwork for the HRA, take care of onboarding each of your employees, and make tax time easy and painless. You'll never have to hassle with receipts or worry about setting up a health plan again.  

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This post was originally published in 2017 and has been updated in 2024 to reflect the exciting changes going on in the HRA world.


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