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How Rising Healthcare Costs Will Affect Your Nonprofit

By October 17, 2023March 14th, 2024No Comments

Although we are now years removed from the COVID-19 pandemic, the shockwaves of our time in quarantine continue to ripple outward, causing dramatic changes to everything from the macroeconomic landscape to commercial real estate rent prices. One of the possible knock-on effects of the pandemic and subsequent inflation will be a dramatic increase in healthcare costs for employers. As the summer winds down and businesses look beyond the final quarter of 2023, they will likely find numerous predictions showing that healthcare costs will rise from anywhere between 5 to 8% in the coming year.

As a nonprofit leader, you know that even small increases in costs can have dramatic effects on your organization. You also have probably encountered the increasingly complex problem of providing adequate healthcare to your team without running up the budget unsustainably. Nonprofits have many unique characteristics that mean they often can’t rely on the same healthcare funding and structure that for-profit and government employers can. Their size, limited budget, and unique culture mean this potential cost increase could seriously limit their ability to do critical work.

Here are some of the reasons healthcare costs are going up, what you can do about it, and why you should care:

Long-tail inflation

A knock-on effect of COVID-19 induced increases in government spending, price increases, and other factors, inflation has dominated headlines, gas station price signs, and grocery store receipts for the last two years. Although the inflation of “core” products like energy and food has gone down, there are numerous products that aren’t getting cheaper, and indeed may become more expensive.

Healthcare is a chief example. Because many health insurance providers offer contracts that last years, these contracts are relatively insulated from price changes in more volatile commodities, and they remain steady until the contracts expire. Additionally, healthcare is a rapidly advancing field, and the recent pandemic created an even greater interest in research spending. 2024 promises to yield some major steps forward in medical technology, including gene therapy, but the costs of these treatments will be front-loaded as the technology becomes mainstream.

The upshot of all of this for nonprofits is that healthcare prices are likely to lurch upward, following along with the inflation of the last two years and creating potential difficulties for nonprofits with limited resources.

How nonprofits like yours can adjust and thrive

Nonprofits are unlike most private and public sector employers. They are generally small and mission-driven, and so do not respond directly to profits and losses as much as specific outcomes. Because of their size, nonprofits are sometimes in line for specific tax credits or other benefits, such as the Affordable Care Act’s Small Business Health Options Program (SHOP) benefit. You can also encourage your team to take advantage of tax credits for health spending, which may put them in line for subsidies which will help defray the healthcare and insurance costs.

If you find it difficult or impossible to buy into a competitive group health plan, you should explore other options, such as a Health Reimbursement Arrangement, or HRA. An HRA is a monthly health benefit that goes to each employee that they can take advantage of to pay for health insurance, medical expenses, or medicines. For small employers, you can offer a Qualified Small Employer ​​Health Reimbursement Arrangement (QSEHRA) which means the benefits you offer to your employers are payroll and income tax-free.

The advantages to this are obvious; having a set budget per employee per month will untether your expenses from growing medical costs, rate hikes, and other pitfalls. You can also adjust the budget you set in accordance with your team’s needs — having a small team means you might be able to have conversations and set expectations for what your employees want and need. The downside is that, should your employee or their family have medical issues that exceed your HRA budget, they may struggle to meet those costs.

Another option is a health stipend, which lacks the tax advantages of an HRA but allows you to expand the coverage options you offer to your employees to include things like mental health support. You can also offer these stipends to contractors or employees that work abroad, who don’t qualify for an HRA or the tax benefits.

Why this matters

The obvious ramifications of increased healthcare costs are a reduction in productivity in other areas — your expenses being tied up offering healthcare could mean goals aren’t met, thresholds aren’t reached, and your projects take longer. There can be other significant impacts that can happen later on should you choose to change your healthcare offerings, particularly if you move to an HRA or stipend.

Longer-term, having to find a balance between staying on budget and supporting your employees can make it difficult to retain your valued team members and hire new ones. It’s well known that the cost of backfilling employee roles, sometimes called staff churn, can be a significant drain on productivity and resources. Additionally, offering less robust health coverage can be a stumbling block in recruiting situations.

This is reflected in research, which shows that employees often care more about having a better healthcare plan and are even willing to take a pay cut to have or keep one. This, paired with the fact that healthcare rarely comes up in job interviews and during recruitment, could lead you to consider the short and long-term implications of increased healthcare spending and weigh these increased costs against the costs of losing staff, dealing with turnover, longer recruitment times, and other problems that could arise.

Get the guidance you need

We at 501(c) Services are nonprofit experts with decades of experience, and we are deeply familiar with these decisions. We can help you identify and take advantage of key areas where you might be able to find extra resources, whether you choose to put them towards healthcare costs or other priorities. If you’d like to speak with us about how we can help you, please get in touch.


501(c) Services has more than 40 years of experience helping nonprofits with unemployment outsourcing, reimbursing, and HR services. Two of our most popular programs are the 501(c) Agencies Trust and 501(c) HR Services. We understand the importance of compliance and accuracy, and we are committed to providing our clients with customized plans that fit their needs.

Contact us today to see if your organization could benefit from our services.

Already working with us and need assistance with an HR or unemployment issue? Contact us here.

(Photo by Thirdman, Pixabay)

The information contained in this article is not a substitute for legal advice or counsel and has been pulled from multiple sources.

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