Last week I was having coffee with the pastor of my local church. He was telling me how difficult it was for the church to provide affordable health insurance coverage for church staff and their families. He asked me: How would the Affordable Care Act help or hurt the church’s efforts to provide health insurance coverage to staff?
Most churches, as well as most not-for-profit agencies in the United States, have less than 50 full-time employees. Less than 50 is a big deal under Obamacare — it means the organization is completely exempt from the employer no-coverage penalty and from the employer affordability penalty. These penalties are explained in other posts, so I won’t go into detail here other than to say it’s good to be exempt from these penalties. If an organization does not have to worry about the penalties, it is free to craft a strategy that takes full advantage of the federal tax credits that Obamacare makes available.
Know Staff Members’ Annual Income
The best answer to my pastor’s question can only be given after I have determined the annual income of the church’s staff households. If a staff member has household income below 400 percent of the federal poverty level, that staff member will be best served, in most instances, with coverage purchased through their state health exchange (also called a state marketplace). This is because the federal government offers tax credits to help with the purchase of health insurance. Here is a table with 400 percent of the federal poverty level for various household sizes:
|400% of Federal Poverty Level (2013)|
|Family of 1||$45,960|
|Family of 2||$62,040|
|Family of 3||$78,120|
|Family of 4||$94,200|
|Family of 5||$110,280|
|Family of 6||$126,360|
|Family of 7||$142,440|
|Family of 8||$158,520|
As you can see from the table, the income levels where one can receive a federal tax credit are quite substantial. If someone qualifies for a tax credit, the majority of their insurance premium, in most cases, will be paid by the tax credit. Families who qualify for a federal tax credit are getting a good deal. To see the exact premium for a specific income level, use our subsidy calculator.
Scenario: Church With Staff of Five
Back to my conversation with my pastor. He has a full-time staff of five individuals. Let’s just say that 3 of the 5 have household income that falls below the threshold shown on the table above. My advice to him would be to drop the church’s group plan since there are federal dollars that can be used for the health insurance premiums for 3 of 5 people on the church staff.
It would be great if the health insurance companies would allow the church to keep the group plan for the remaining two employees, but most group plans require at least 75 percent of full-time staff to be enrolled. Because the church is saving a substantial amount of money once the group plan is cancelled, it could then divide the dollars that had been spent on group health insurance as extra income for the staff members. The two staff members who don’t qualify for the federal tax credits could use the extra income to buy a non-subsidized plan on the exchange or directly from a health insurance company. These two may be worse off because plans offered on the individual market generally are more expensive than employer group plans. But the church could take this into account when disbursing the savings from cancelling their group plan.
Pros and Cons of This Approach
The benefit of this approach is that the church or nonprofit is essentially removed from the health insurance purchasing decision. There are no annual renewals with big premium increases for the church’s governing board to agonize over. For the three staff members who have household income below 400 percent of the federal poverty level, their premium will always be linked to their income level and not to the cost of the health insurance. Effectively, medical inflation becomes the problem of the federal government.
The downside of this approach is finding the best way to help the two staff members who have lost their group health insurance plan. These two individuals (in our fictitious scenario) must purchase their insurance at full price, and Obamacare does very little to lower the actual cost of insurance. Additionally, there is no way for any of the individuals to pay their premiums on a tax-free basis.
In summary, Obamacare offers dollars to churches and nonprofit organizations that may be to the benefit of staff and to the organization’s budget. They would do well to try and take advantage of these available dollars.