Scary Surge: How Rising Health Insurance Costs Are Haunting Nonprofits

Created By: Jessica Shatzel
October 31, 2024

Earlier this month, KFF, a nonprofit health policy organization, released its 26th annual Employer Health Benefits Survey, validating what many employers and employees have come to realize this year: the cost of health insurance is on the rise. By how much, exactly? According to the survey, employer-sponsored family health coverage costs reached an all-time high of $25,572 this year, up 7% from last year, which was also up 7% from 2022. Costs for individual insurance plans fared no better, increasing 6% to $8,951, following a 7% increase last year as well.

The ‘Why’ Behind Rising Health Insurance Costs

While, like groceries and rent, healthcare costs are not immune to inflation, these increases are in stark contrast to the 1% increase in costs recognized from 2021 to 2022, and are outpacing both the 4.5% increase to workers’ wages and the 3.2% spike in inflation. The reasons for increasing health insurance costs are many–an aging population, more people utilizing their health care benefits post-pandemic, new healthcare technology, pricey specialty drugs, and healthcare labor shortages among them– but the impact is universal: employers and employees are paying more for healthcare than ever before.

The Challenge for Nonprofit Organizations

Unlike their corporate peers, nonprofit employees’ salaries are often constrained by philanthropic contributions and mission-focused budgets. This gap has often been bridged by nonprofits offering competitive benefits packages and perks to supplement lower monetary compensation. At a time when these organizations fight for top talent and struggle to retain their current workforce, increases to health insurance costs hinder this effort. On average, employers pay 84% of individual plan premiums and 75% of family plan premiums and they have generally refrained from passing on these additional expenses to employees. While the cost of family health insurance plans has soared 24% since 2019, employee payroll deductions have increased just 5% as employers absorb many of these expenses.

For nonprofit organizations, these extra costs can mean cuts or constraints elsewhere. Do you cut funding for mission-driven activities, or do you cut back on employee benefits and health coverage expenses? Does your funding model even allow you to do this? With two-thirds of employees stating that healthcare benefits are second only to salary in considering employment opportunities, and another 78% claiming they would switch jobs if their benefits package was inadequate, nonprofits especially are at risk for a talent shortage when costs prohibit them from offering a competitive benefits package that both attracts and retains staff. In turn, this can fuel a churn that diminishes the impact delivered because of the loss of top talent to execute quality programs, secure transformational funding, or create innovative solutions.

The Impact of Rising Health Insurance Costs on Employees

Despite employers’ best efforts to keep health insurance premium costs low for employees, the majority of employees believe their monthly contributions to employer-provided benefits are too high; 23% are struggling to afford them, according to the 2024 Intuit QuickBooks Allstate Health Solutions Benefit Survey. The cost of health insurance premiums do not take into consideration an employee’s salary, which means that the employee making $55,000 per year could be paying the same amount as the employee making $155,000 per year. The skyrocketing cost of health insurance is chipping away at employee wages at all levels, but this is acutely felt for employees in lower-paying positions.

With health insurance premiums disproportionate to their wages, lower-earning employees are opting out of employer-offered health insurance plans and either joining partners’ or parents’ plans, turning to the marketplace, or going without insurance. Research by HealthEquity revealed that 45% of employees earning less than $100,000 annually reported that their workplace benefits are unaffordable. Given that for every dollar earned by a typical White employee in America, a Black employee earns 84 cents and a Hispanic or Latino worker earns just 76 cents, the financial strain of rising health insurance costs continues to perpetuate inequity. Employees of color are losing more of their wages to increasing health insurance premiums by shouldering a greater burden of the increase as a percentage of their earnings.

How Nonprofits Should Respond to Rising Health Insurance Costs

While health insurance costs may be out of our control and navigating changing benefits is a daunting task, ensuring that employees feel secure, informed, and knowledgeable about their benefits is paramount. Here are some considerations for nonprofits for managing costs while maintaining employee trust as health insurance evolves:

Create clear differentiation in plan offerings: partner with your broker to craft plans that are well-suited to the diverse needs of your staff and limit disruption to current employee plans. Set plans based on varying medical utilization. Consider affordable options versus “Cadillac” options taking into account deductibles versus premiums. Ensure employees understand plan options and differences and are empowered to make the best selection for their personal circumstances.

Institute employee wellness programs: not only can such programs reduce organizational healthcare costs and insurance premiums, but they can also be perceived as an extra perk for employees who may otherwise feel they are losing something due to increased insurance costs.

Devise a communication plan for staff: employees will want to know how they are impacted by changes to your plan and rates. Communicate early and often. Keep messaging clear, concise, and repeatable. Leverage varied communication platforms so that employees receive key communication regardless of their preferred communication methods.

Be transparent: explain why plans are changing or rates are increasing to help create a level of understanding and buy-in for these updates. Employees may not be aware of the national health insurance landscape. Share a broader lens to alleviate the misconception that these changes are exclusive to your organization or the industry.

Orr Group provides comprehensive human resources support, including benefits administration for nonprofit organizations. To learn more about how we can help you craft and manage your employee benefit offerings, navigate open enrollment, or support your staff with benefit utilization, reach out to our Talent Management team!

Jessica Shatzel is a Senior Director and Head of Talent Management at Orr Group. Jessica specializes in executive search, recruitment, and DEI strategy, and provides a variety of human resources support for our clients.