Qualified Healthcare Plans for Churches

What Should American Churches Be Doing?

Pastors are Vulnerable and Church Leaders Need to Protect Their Shepherds and Their Churches

By William D OConnell, CPA, CGMA written on April 7, 2014

So here we are – about 90 days into the Healthcare Plans Reform World.  Most churches have made choices, and they hope they have chosen wisely. 

What have we learned?

Healthcare Plans and Churches
  • Most of us have learned that the individual healthcare plans purchased from the Exchanges do not provide particularly good coverage.  The most popular bronze plans pay 60% once they finally begin paying at all.
  • We have learned that the individual policies are expensive and have very high out-of-pocket limits that most clergy cannot afford to pay.

And for these reasons, more and more churches are dissatisfied with the healthcare coverage they are providing.  But now that Open Enrollment is effectively closed, is there something that can be done to provide a different form of coverage for clergy and staff?

Are there any paths still open? 

I think so.

Churches may be underestimating the value of Employer Healthcare Plans.

Employers providing a sponsored (“group”) plan are entitled to a 35% refund of the premiums paid in 2014.  

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This is a large discount that I believe American churches are failing to factor into their cost estimates of health care coverage. 

For example, a policy costing the church $1500 per month, will receive a $6,300 refund next year from IRS.  So what may appear as an $18,000 expense becomes $11,700 net expense.

Said differently, employer sponsored plans may be less expensive after the refund is “netted into” the final cost calculation.

Since Employer plans may be purchased on a non-calendar year basis, churches can convert their coverage model from individual coverage to a less expensive employer-sponsored plan at any time during 2014.  And they may save money in the long run by doing so.

Our firm has recovered over $1 million of Health Care Refunds for American churches under this program.  Call me at 617-921-9321 for a free consultation on the cost comparison for your church.

(End of update-4-7-14)

For almost five years Americans have been subjected to healthcare claims and counter-claims trying to predict what medical care in America will become under the Affordable Care Act (ACA). 

Now the deadlines have arrived and “the law of the land” is taking effect.

Regardless of anyone’s political beliefs, the simple fact is that church leaders have a new compensation landscape to navigate. 

Because of the many changes brought about by the ACA, churches should review their compensation packages.  Wise leaders will not assume that their church’s 2013 compensation package is sufficient for 2014. 

Among the many things that churches should evaluate are these.

  1. Pastors must have coverage.  Any American without coverage as of March 31, 2014 will be fined (the government has extended the deadline to April 15th if the enrollment process was started before the March 31st).  The law does not require a church to supply coverage, but it does require that all have coverage.  Leaders have an obligation to insure that either the church provides acceptable coverage, or that the pastor’s compensation package is adequate for the clergyman to purchase an acceptable individual policy.

    In many cases, it will be cheaper for the church to purchase the policy directly, since up to 35% of the premium cost will be subsidized by the Federal Government (See Healthcare Credit discussion below).  This refund is only available for coverage purchased directly by the church.
  2. Church Healthcare Plans must be a “qualified health plan”.  A church’s existing healthcare plan may not be qualified under ACA for reasons ranging from their availability to the general public to which medical conditions it covers.  Some denominational church plans, for example, are currently “not qualified” and are seeking amending legislation.

    Church leaders are advised to get guidance directly from the agent or other insurance professional that sold the healthcare plan.  In some cases, the same plan may be kept, but the agent should be instructed to place the business through the SHOP (Federal or State Exchange), so that the Small Business Healthcare Credit can be preserved.
  3. The Healthcare Credit for churches is 35% in 2014.  Many small and mid-sized churches with healthcare plans and which withhold and pay payroll taxes qualify for up to 35% subsidy from the Federal Government.  These credits are refunded via IRS and can total in the tens of thousands of dollars.
  4. Treat the onset of the ACA as an opportunity to implement proper procedures. Churches that have taken compensation short-cuts until now should regard the advent of the ACA and the Healthcare Credit as an opportunity to improve their compensation programs. Two common circumstances needing corrections are these:

a.    Stop paying clergy as self-employed contractors that are reported via form 1099.  Nearly every local church minister qualifies as an employee and should be compensated via payrolls and provided a W2 form at year end.  Churches that do otherwise risk penalties and fines, and subject the minister to having otherwise tax-free benefits reclassified as taxable income.

b.    Provide a church sponsored health plan that pays at least 50% of premium cost.  Churches honor their clergy by providing a program that puts them in compliance with the ACA.  Further, it is the most cost-efficient manner for the church to provide healthcare coverage when it takes advantage of the 35% credit allowed by the ACA.

About the Author:

William OConnell is the founder of Wisdom Over Wealth, a CPA ministry serving churches, Christian organizations and followers of Jesus Christ.

He may be contacted via the website www.wisdomoverwealth.com or at 617-921-9321.


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Archive of Healthcare Comments

The following comments, tips, and Q/A were provided by FreeChurchAccounting's generous readers:

Health Insurance Reimbursement 
We pay our pastor $600 per month for his health insurance. Is this payment considered income to him? Should this be on his W-2?

Healthcare Questions and Housing Allowance Effect on Insurance Subsidy  
Please post your related questions regarding insurance premiums and housing allowances and the healthcare subsidiaries on this page and let's help each …

Medical insurance for employees 
What is the standard practice for churches regarding medical insurance. Do most pay the employees premium only or include the dependents also?

Health Care for All Staff? 
If the church offers to pay for healthcare as a tax free benefit does it HAVE to offer it to ALL pastoral staff by law?

Medical Insurance Reimbursement 
If a minister is given a separate payment for medical insurance in the amount of $500.00 and purchases $350.00 in medical insurance, how should the residual …

Deadline for ACA health Care Credit 
Is it too late to file for the ACA health Care Credit?

8941 Healthcare Credit 
Although not required to file 990-T, our church is filing past years in order to claim the small business healthcare credit. Our church has been withholding …

NJ Methodist Links - Instructions For Claiming Health Law Credit 
I am the treasurer for a Methodist Church in NJ. We were able to claim a little more than $6,000 total over the past 2 years as a result of the "Credit …

Insurance Premium Payment 
We pay the premiums for health care plans for our pastors. The policies are ones that they selected, the policies are in their names, but we write out …

Please clarify on a HRA 
Our pastor has health insurance through his wife's employment. We have a HRA whereby we reimburse him for their out-of-pocket expenses such as co-pays, …

housing allowance for pastors provided w-2 instead of form 1099 
If a church does as you suggest in this article, that is, to stop paying a pastor as self-employed (form 1099) and to pay him as an employee (withholding …

What if the Pastor is Covered by Medicare and VA health? 
Our Pastor is covered by Medicare and VA health benefits, due to his age and his previous service in the US Navy. Both of these are qualifying plans to …

I was under the impression that christians could opt-out of the ACA if they were a part of a Healthcare cost sharing group like Samaritan Ministries 
I was under the impression that christians could opt-out of the ACA if they were a part of a Healthcare cost sharing group like samaritanministries.org …

Is it legal for a church to pay a pastor's individual healthcare premium directly to insurance company? 
We are moving away from a group insurance plan. The church would like to pay the Pastor's individual insurance premium directly to insurance carrier. …

Insurance Payment Reimbursements 
Because of the new law that went into effect for insurance payments, the church can no longer pay the pastor's medical insurance unless it's a group insurance. …

Reimbursed Health Insurance Premiums and the W-2 
The church that I work for has been reimbursing the secretary and the youth Pastor for their health insurance premiums. How do we show this on the w-2? …

Tax Free medical insurance 
I have been told that a small church with only one full time pastor is qualifed for tax free insurance paid by the church. Is this true and if so, where …

Church size 
is there a limit to the number of full time employees in order to receive a refund?

Refund from IRS for 35% Credit? 
Hi Bill, I saw some of your notes on the 35% health insurance credit available to churches through the IRS. I'm not aware of our church, a non-profit …

Impact of Affordable Care Act on Form 4361 
I'm wondering if passage of Affordable Care Act will impact Form 4361? Currently it states ministers may opt out of SS/ Medicare if they object to any …

How to report company paid health insurance? 
Our church pays for our pastor's health insurance and a support person's health insurance directly to the insurance company. Would I treat this just as …

Ministry only has one employee 
If the 501C-3 ministry only has one employee - itinerant worship leader, what will be the penalty if he does not have health insurance?

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The comments above are for general information purposes only and do not constitute legal or other professional advice on any subject matter. See full disclaimer.

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