Two Ways Churches Can Help Pastors With Medical Expenses
Are churches missing an opportunity to invest in the financial health of their pastors and staff?
In the last decade, there has been an increased focus on affordable health care. But even after several legislative attempts to overhaul health insurance, many small businesses, including churches, do not assist their employees with medical expenses. I believe churches are missing an opportunity to invest in the financial health of their pastors and staff.
Many Assemblies of God ministers receive a modest salary for the ministry work they perform. Forty-five percent of AG ministers receive less than $30,000 in total compensation and benefits, and many do not receive benefits like health care or retirement contributions. In fact, 64% of ministers receive no health insurance benefits from their churches.
No wonder 38% of ministers work a second job, and 14% under age 45 receive government assistance, such as food stamps.
In 2019, 137 million Americans reported financial hardship due to medical costs. And about 67% of all personal bankruptcies are related to medical issues. Understandably, many ministers are concerned about the state of their personal finances.
I believe a healthy church will be generous and intentional about compensation planning. A well-rounded compensation plan includes not only a salary, but also benefits like insurance, retirement contributions and education assistance. Reducing the financial stress of pastors makes it easier for them to minister. When we take care of our church leaders, entire congregations benefit.
Since passage of the Affordable Care Act (ACA), the law requires U.S. citizens to have health insurance with minimum essential coverage, unless they qualify for an approved exemption. While taxpayers no longer face fines for noncompliance, the law still applies.
Individual health plans are available for anyone who doesn’t have employer-provided insurance. Individuals may purchase coverage directly from insurers or through the Health Insurance Marketplace the ACA created.
Group health insurance plans are those employers can purchase for their employees. Most businesses with two or more employees can purchase group health insurance, which may offer lower premiums than individual plans. Employee premiums can be paid with pretax dollars, and the employer may be able to lower payroll taxes.
Reducing the financial stress of pastors makes it easier for them to minister.
Under the ACA, employers — including churches — with 50 or more full-time employees not offering ACA-compliant health care to employees will owe a penalty, the employer shared responsibility payment.
While there is no requirement for organizations with fewer than 50 full-time employees, the government offers a two-year refund incentive to employers with fewer than 25 full-time workers who purchase employee insurance through the Small Business Health Options Program (SHOP) and pay at least half the premiums.
Prior to the ACA, churches not offering group insurance could still help their employees with medical costs by reimbursing premiums, deductibles and co-pays. This was a tax-free alternative to group health insurance. Today, such arrangements are illegal and subject to a staggering fine of $100 per day, per employee.
Thankfully, significant legislative changes now make it relatively easy for churches to help with health care costs of their employees on a tax-free basis.
Two new options are the Qualified Small-Employer Health Reimbursement Arrangement (QSEHRA) and Individual Coverage Health Reimbursement Arrangement (ICHRA). Both allow employers to reimburse employees for medical expenses without providing a group health insurance plan. The employee must still have an ACA-compliant health insurance plan.
QSEHRA, available since 2017, allows churches with fewer than 50 employees to use employer funds to reimburse health insurance premiums and other out-of-pocket medical expenses on a tax-free basis. It is important to note that only the employer can fund a QSEHRA, and employer contributions for 2020 are limited to $5,150 for single coverage and $10,450 for family coverage.
ICHRA, which became available this year, allows churches of any size to reimburse employees for qualified medical expenses, such as premiums and other out-of-pocket expenses. ICHRAs can also reimburse Medicare premiums. These reimbursements are funded by the employer and can be provided on a tax-free basis.
ICHRAs do not have contribution limits like QSEHRAs and seem to offer more flexibility. However, both have reporting and eligibility requirements, and the employer is subject to penalties for any noncompliance. For this reason, it is important for a church to work with an experienced health insurance broker or employee benefits professional to create a program that complies with government rules.
The rising cost of health care is a major factor contributing to financial stress for many Americans, including AG ministers. These recent changes give churches more options for assisting pastors and church staff with medical expenses on a tax-free basis.
This article originally appeared in the May/June 2020 edition of Influence magazine.