The Best Health Insurance for Small Nonprofits in Texas

An easy-to-read guide on employee health insurance coverage for smaller-sized nonprofits.

Ellen Decareau
Head of Marketing, Customers & Communications

Key takeaways

Navigating health insurance is already a headache. Throw in over 60 hours of research and administration, and you've got yourself a Herculean task. It's not like nonprofit admins have spare time to become health insurance pros on top of everything else.

Yet, access to employee health insurance is a big deal. Texas alone is home to 150,000 nonprofits (Everything IS bigger in Texas.) And the vast majority of these organizations have fewer than 25 employees.

So, what's on the table for smaller-sized nonprofits looking to provide health insurance?

When it comes to health insurance options, four main strategies stand out:

Each option has its own set of advantages and disadvantages. Let’s take a look.

How smaller nonprofits are left out

Smaller nonprofits, especially those with fewer than 20 employees, are in a tight spot trying to find health options that are both affordable and comprehensive, all while going head-to-head with bigger orgs that can offer more enticing benefits packages. Health insurance costs have increased over 400% over the last decade, keeping up with rising costs and offering a competitive benefits package is becoming near impossible.

It's probably why only a small chunk of nonprofits, about 18% according to this research, manage to offer a group health benefit.

1. Fully-insured group health insurance plan

For many decades, small organizations (nonprofit and for-profit small business) have leaned towards fully-insured plans. In this setup, the employer works with a broker to find a group health plan and then pays a fixed premium to the insurance company, which handles all the claims from enrolled employees.

Advantages:

Predictable monthly premium costs. These plans might be the most expensive (see disadvantages) but you do know your premiums every month.
Comprehensive coverage options. Because these plans are regulated by the state, insurers are required to provide a certain standard of benefits for all employees.

Disadvantages:

Often higher premiums in comparison to other options. This tends to be the most expensive option available.
Less flexibility in tailoring plans to specific needs. Small nonprofits are frequently offered one option for everybody.
High minimum participation rates. Enrolling in a group plan generally requires at least 70% of employees to enroll, which can be insurmountable for many small businesses.
High minimum premium contribution. Group health insurance carriers may require a minimum of 50% premium contribution, which can be a high bar for some nonprofits.

2. Level-funded group health insurance plan

Level-funded plans operate like traditional fully-insured health plans, but part of the premiums goes into a claims fund to cover health expenses for employees. If there's money left over at the end of the policy term, it could get credited back to the employer, which means potential savings. However, if claims exceed what was collected, premiums can increase significantly.

Advantages:

Potential refunds if claims are low. That makes the potential for savings better than a fully insured health plan.
If you have healthy employees, your costs tend to be lower. Carriers require underwriting to assess risk.

Disadvantages:

Employees must remain healthy. If one claims exceeds the threshold, your rates may increase.
High minimum participation rates. Similar to fully-insured health plans, at least 70% of employees must enroll.
Less flexibility in tailoring plans. Small nonprofits frequently are offered the same option for everyone.

3. Extra cash in the paycheck

After facing barriers, smaller nonprofits may give extra cash to employees instead of a group health plan. While this has some benefits, it doesn't usually result in the intended value.

Advantages:

Easy to budget for. All an employer has to do is add extra money to a paycheck.
Predictable costs. Employers can provide a fixed amount they can afford.

Disadvantages:

Missed value. Employees may not realize that they are receiving cash for health insurance.
Taxes diminish value. Employees face FICA and federal income taxes on the additional cash.
No guarantee it goes to health insurance. Employees may not use the cash for insurance purposes.

4. Pre-tax, fixed benefit (ICHRA)

The Individual Coverage Health Reimbursement Arrangement (ICHRA) allows employers to reimburse employees for their health insurance premiums. This flexible option enables employees to choose their health plans while the administrator sets an affordable budget.

Advantages:

Flexible and personalized. Employees can select health plans that suit their needs.
Controlled costs. Administrators can set a monthly budget that works for them.
Pre-tax benefit dollars. The contributions go further since they are tax-free.
Quick setup. Enrollment is efficient and can be completed online easily.

Disadvantages:

Health insurance can be confusing. Employees may require assistance to navigate their options.

What about the cost: Small group versus individual marketplace insurance

A decade ago, small group health plans were significantly cheaper than individual plans. Today, prices for both are relatively similar:

In Houston, small group plans cost about 8% more than individual health plans.
In Dallas and Austin, small group plans are about 9% less than individual health plans.
In San Antonio, the costs are roughly equivalent.

Here's a snapshot of pricing:

Bottomline: What’s the best health insurance for nonprofits in Texas?

For small nonprofits in Texas, figuring out health insurance involves balancing tight budgets with attracting talent. The main options are fully insured health plans, level-funded health plans, offering extra cash, and ICHRAs.

Selecting the right option hinges on the specific needs of the nonprofit. In conclusion, managing health insurance for small nonprofits is a complex but navigable process, and understanding your options is crucial for creating a solution that meets organizational goals and employee satisfaction.