3 Questions Pastors Are Asking About Health Care

By Trey Lewis

“The whole healthcare system is messed up. It is so complex and confusing that we are not sure where to begin.”

This was the beginning of a conversation I had with a pastor at one of our recent Ultimate Church Structure Conferences. Like many other pastors and ministry leaders, this pastor was frustrated and in need of a little guidance.

I listened to his concerns and questions, and I provided him with some insight and direction on how to proceed. 

Later that night on the plane ride home, I could not get this conversation out of my mind. I said a prayer asking the Lord to bless and guide this pastor and his church. Soon thereafter, it hit me. 

Although my conversation with this pastor was unique, it is similar to conversations that I have with other pastors and ministry leaders at many of our conferences.

I realized that even after 7 years since the Affordable Care Act (ACA) was passed, pastors and ministry leaders are still asking questions about health care as it relates to their churches or ministries. 

With that being said, I felt inspired to write a blog post that addresses common questions that pastors are asking about health care. I hope that you find this to be of some value to you and your ministry. 

Questions pastors and ministry leaders are asking about health care

The ACA was passed on March 23, 2010, and it changed the landscape of health care in America. It has been a little more than 7 years since its passing, and the scope of health care still seems daunting and intimidating . . . but it does not have to be.

The scope of health care still seems daunting and intimidating . . . but it does not have to be. 

Below are three commonly asked questions pertaining to health care that we receive from pastors, church leaders, and church administrators.

Before we proceed, please note the following questions and answers are not intended to be legal advice. Rather, the questions and answers that follow are intended to provide you with information to help guide you and your church. 

If you have specific questions that pertain to health care and your church or ministry, we recommend you seek the counsel of a qualified attorney and tax professional.

Question 1: “Who is required to have health care coverage, and what happens if one does not maintain it?”

In short, all individuals are required to have health care coverage. Individuals who do not maintain minimum essential coverage will be required to pay a penalty. There are three main types of minimum coverage:

1. Employer-sponsored coverage - This is a health plan provided by your employer that meets the requirements of the ACA.
2. Individual health coverage - This is a health plan that you obtain on your own. This must also meet the requirements of the ACA.
3. Coverage under government-sponsored programs - This includes coverages such as Medicare and Medicaid.

The fee assessed to those who do not maintain minimum essential health care coverage is calculated in two different ways: a percentage-based penalty or a per-person penalty. You will end up paying whichever is higher.

1. Percentage-based penalty - 2.5% of your household income, not to exceed the total annual premium of the national average of the Bronze plan sold through Marketplace, or
2. Per-person penalty - $695.00 per adult, $347.50 per child under 18, not to exceed $2,085.00.

Question 2: “What are my church’s health care coverage responsibilities as an employer to its employees?”

There are two provisions in the ACA that affect churches: the employer mandate and the employer payment plans. Let us take a look at each of them.

1. The employer mandate: 

This mandate requires that all employers (including churches and ministries) with 50 or more full-time equivalent (FTE) employees provide health insurance to at least 95% of their full-time employees and dependents up to age 26, or pay a fee. The penalty for not providing health insurance is generally a flat $2,260.00 per full-time employee (excluding the first 30 employees). 

Since most churches and ministries have less than 50 full-time employees, the employer mandate will not apply. Although the employer mandate may not affect your church at this time, this next provision most likely will.

2. Employer payment plans:

Over the years, many churches have relied on the convenience of section 106 as a way to offer pastors and other church employees tax-free health care payments. In 2013, through Notice 2013-54, the IRS addressed the continuation of section 106 employer payment plans in accordance with the ACA. The latest determination is that employer payment plans do not meet the requirements of the ACA.

This is not to be confused with section 105(b) medical expense reimbursements.

Section 105(b) of the Internal Revenue Code allows an employee to receive a nontaxable reimbursement benefit of medical expenses for the employee, his/her spouse, and dependents under the age of 27 when the reimbursement is paid directly or indirectly to the employee. 

Question 3: “Although not required, our church wants to provide health care coverage to our employees. What are our best options?”

In all likelihood your church will not be required to provide a group health care plan since most churches usually have less than 50 full-time equivalent employees. Still, I imagine your church will want to provide some sort of health care coverage to your employees. 

So, what are your options? 

In addition to the Qualified Small Employer Health Reimbursement Arrangements (QSEHRA), discussed in a previous blog, being an option, here are two more options for your church to consider.

(Recommended reading: "Congress Gives New Relief to Churches")

Option 1: Small Business Health Options Program (SHOP)

The first option is that your church can purchase a qualified group health care plan from an insurance provider. However, for churches that have only a handful of full-time staff members, this is not always the most feasible or affordable option. Some smaller organizations that wish to provide health insurance may qualify for the Small Business Health Care Tax Credit.

This credit is available to small churches and other employers that provide group health care for their staff. Furthermore, this credit is only available to employers who enroll in a qualified health plan offered through the Small Business Health Options Program (SHOP) Marketplace. 

While each situation is different, there are a few conditions that must be met in order to qualify for the tax credit. These conditions are as follows:

1. Number of employees: Your church must have fewer than 25 full-time equivalent employees.
2. Average wages of employees: The compensation your church pays its employees must be an average wage of less than $50,000.00 a year.
3. Employer-paid insurance premiums: As the employer, your church must pay at least half of employee health insurance premiums.

If your church meets these requirements, then you will need to use Form 8941 to calculate the credit. However, as a tax-exempt organization, you must include the amount on line 44f of Form 990-T. 

In order to claim the credit, you must file the Form 990-T even if you do not normally file that form.

Option 2: An increase in wages

Until July 1, 2015, a common practice among many smaller churches was to help their employees offset the cost of health care by either reimbursing them for the cost of insurance premiums or by paying the health insurers directly for the cost of private health insurance that employees obtain.

As previously mentioned, these section 106 employer payment plans are no longer viable options for churches. However, according to IRS Notice 2013-54, if your church has only one full-time equivalent employee, then the employer payment plans are still a viable option. Once your ministry has two or more employees, this will no longer be an option for your church.

The IRS gives a solution to small organizations with two or more employees that wish to provide some sort of health care assistance but cannot afford to provide a qualified group health care plan. 

In Notice 2015-17, the IRS states that as long as the employer (church) “does not condition the payment of additional compensation on the purchase of health coverage,” it will not be considered a group health plan as described in Notice 2013-54.

In other words, your church may give a raise to its employees to help offset the coverage of health insurance, but it may not designate the additional compensation for health coverage purposes.

The ever-changing reality of church compliance

I am sure many of you are aware that the U.S. House of Representatives approved legislation to repeal and replace major parts of the ACA. The new health care legislation must now pass through the U.S. Senate before it repeals the ACA and becomes law.

As of now, the ACA is the law that still governs health care. We will continue to monitor the process of the proposed health care law that is currently before the U.S. Senate and we will keep you updated.

In the meantime, if you have any additional questions, please give us a call at 877-494-4655 and one of our knowledgable team members will be happy to assist you.

Also, I invite you to join me at one of our conferences in a city near you for a time of empowerment and impartation for you to begin dreaming bigger. 

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