Health Benefits and Your Church’s Employment Culture
Few things are more confusing than the topic of health coverage. The Heartland region commonly experiences a dual-spouse occupational reality, primarily driven by a household’s need to secure a fitting health coverage plan. One common example is that of the self-employed farmer who works on the farm while his spouse works a health-benefit-providing job.
Many other people, including pastoral families, experience a similar reality. Having facilitated scores of pastoral search efforts across our region, I have found that many churches have a common struggle when it comes to defining pastoral benefits, especially health benefits. This common challenge is linked to the church’s employment culture.
Though this issue of health benefits is being primarily addressed for church purposes, small-business owners, farmers, and other nonprofit leaders will also find this article both solutions-oriented and beneficial.
Examine Your Church’s Employment Culture
Employers such as school districts, health providers, larger corporations, or governmental organizations have a relatively refined human-resource culture in comparison to the average church. This means they are intentional about caring for their staff through competitive compensation and a comprehensive benefits plan. They purposefully strive to maintain, sustain, and retain their employees. Like churches, many employers, and especially nonprofit employers, recruit based on a person’s qualifications, community fit, and sense of calling to the vocation. They may not have huge salaries to offer, but according to Chris Resto’s research in his book, Recruit or Die (2007), organizations such as churches, small businesses, and nonprofits primarily recruit employees to the organization’s vision and culture.
How your church intentionally handles your pastor’s benefits and, especially, his family’s health benefits, is a critical aspect of your church’s employment culture. When it comes to the compensation and benefits you provide to your pastoral staff, how healthy is your church’s employment culture?
Consider the Typical Health Coverage Options
Most local churches qualify as small employers and are not legally required to offer health benefits. However, just because there is no legal requirement does not mean the church should not provide health benefits to their pastor and full-time staff.
Unless insurance is provided through external sources such as spousal employment, a military career, Medicare, or Medicaid, there are two basic health plan options most ministers consider. The following gives a basic understanding of these two options.
OPTION 1: Purchasing a High Deductible Health Plan (HDHP) through the Healthcare.gov Marketplace
Pros: These plans are tax-free, provide catastrophic health expense coverage, offer income-driven rates based on adjusted gross income (AGI), and qualify for use with a Health Savings Account (HSA), a Health Reimbursement Arrangement (HRA), a Flexible Spending Account (FSA), or a Medical Savings Account (MSA).
Cons: These plans can be more expensive, and some additional reporting efforts may be required.
OPTION 2: Joining a medical cost-sharing program (Medi-Share)
Pros: These programs are less expensive and have a positive reputation for covering basic health expenses and some larger health expenses.
Cons: These programs are taxable and not yet considered health insurance. Their monthly fees cannot be paid for with an HRA. The member maintains an uninsured status with health providers. Additional administrative effort is required, and they provide no catastrophic health expense coverage guarantees.
Consider an Alternative Option
Giving a clearly defined health benefit to your church staff does not need to be an all-or-nothing proposition. Though fully funding a health plan for your church staff should be a top budgetary priority, many churches are not yet doing this.
In the meantime, please consider the option of a Health Reimbursement Arrangement (HRA). HRAs are set up by the church on behalf of their pastor. As an example, suppose a health insurance plan is going to cost your pastoral family $12,000 per year in premiums with a maximum out-of-pocket deductible of $8,000. Your church wants to help with this but does not know how nor can it afford to pay the full amount. Through an HRA, your church can allocate tax-free funds toward your pastor’s insurance premiums and out-of-pocket medical expenses. This benefit is effective even if your pastoral family has an external source of health insurance because there are always deductibles and/or out-of-pocket medical expenses.
Here is how it works. Churches benefit most from using a specific type of HRA called an Individual Coverage Health Reimbursement Arrangement (ICHRA). In fact, churches do not need extra bank accounts. Congregational leaders simply need to budget a consistent health-benefits amount for their church employees and secure an inexpensive third-party administrator to administrate their church staff’s receipts and approve their reimbursement amounts.
One such third-party administrator can be explored at PeopleKeep.com. Through an ICHRA, churches have some freedom to customize reimbursement benefit limits for their church staff according to employment status. An ICHRA will allow your staff to receive tax-free reimbursements for their family's health insurance premiums, deductibles, glasses, dental work, and a whole host of qualified medical expenses. It is important to note that ICHRAs cannot be used to pay for monthly medical cost-sharing (Medi-Share) health program fees, but they can pay for other out-of-pocket medical expenses.
Taking Action
A church with a good employment culture will offer their full-time or bi-vocational pastor the best and most detailed compensation and benefits plan they can. Here are some steps to establishing a medical benefit for your church staff.
Begin with your church budget structure by including separate budget line items for employee compensation and benefits such as Salary, Housing, Self-Employment Taxes, Retirement, Education, and Medical. Even if you have little or nothing to put into those line items, keep them in your budget as a worthy church-employment-culture goal to attain. Determine your church’s budget amount for an employee's medical benefit.
Talk with your pastor about his health plan preferences. If his family desires or has a non-taxable qualified health insurance plan, then setting up an individual coverage health reimbursement arrangement (ICHRA) is your next step. If your pastor desires to join a taxable medical cost-sharing program, then discuss whether he would rather the church reallocate his medical benefit into his taxable salary, from which a medical cost-sharing program is paid, or whether he would prefer to set up an ICHRA for other out-of-pocket medical expenses.
Determine what third-party administrator (TPA) you will use to administrate medical expense receipts and reimbursement approvals. Please do not try to do this for your own church staff as it can easily violate laws established to protect the medical privacy of individuals. Though Converge Heartland is exploring the option of becoming a third-party administrator for our region, we are not yet ready to offer this service.
Properly pay and report medical reimbursements. Once your third-party administrator approves qualified health expenses for reimbursement, the church or church’s payroll service needs to add the reimbursement amount to the pastor’s paycheck and year-end W-2 as a tax-free health benefit.
Bringing intentional clarity to the health benefits you offer your church staff serves as one big step toward improving your church’s employment culture. Improving your church’s employment culture encourages longevity in your pastoral staff. And pastoral stability works to strengthen your church.