Churches can offer health insurance as tax-free benefit

Churches can offer health insurance as tax-free benefit

Finally! We have a solution for churches that want to provide health insurance for their employees as a tax-free benefit. Not exactly the one we had in mind three years ago, but completely doable thanks to the Trump Administration and the federal Departments of Labor, Treasury and Health & Human Services.

On January 1, 2014, the Affordable Care Act foreclosed the ability of churches to reimburse their employees for the cost of personal health insurance, and imposed a $36,500 annual penalty for doing so. We desperately tried to create a group health plan to overcome this obstacle, and it did not work.

In early 2018, the Trump Administration created new rules for “association” health plans, which would have been perfect, but state lawmakers quickly passed legislation prohibiting such plans in California.

In June, new federal rules were approved that permit employers to create “Health Reimbursement Arrangements” (HRAs) to reimburse employees for their cost of individual health insurance premiums. The state cannot overturn those rules.

There are, however, some important requirements that must be observed.

One such formality is the adoption of an HRA “Plan Document.” These highly technical documents are too complex and costly to be created from the ground up by CSBC or a local church, and must include a full legal review. Through the HR & Church Compliance Ministry, CSBC has partnered with Core Documents to provide any of our cooperating churches with a complete HRA Plan Document and Summary Plan Document, affordably enabling the church to cover the cost of some or all of their employees’ health insurance premiums as a tax-free benefit.

For a one-time fee of $149 for one employee (the pastor) or $199 for 2-99 employees, our churches can establish a fully compliant “Section 105 HRA,” and Core Documents will do all the necessary work. But the timing is critical! The implementation of such a plan requires giving eligible employees a notice 90 days prior to the plan’s effective date. A late notice may affect the ability to reimburse some of the premiums. We have a compliant “model notice” available for distribution while your church considers adopting and budgeting such a plan. October 3 is the deadline for a plan to be effective January 1.

Pastors who choose to participate in an HRA and obtain their health insurance through Covered California would no longer be eligible for the premium tax credit, but they may also find additional health plans with enhanced benefits and lower premiums “off exchange.” CSBC Insurance Services, LLC or any other agent can assist in locating health plan options in a church’s geographical region and enrolling the pastor and his family.

Because the “individual mandate” is gone, a church and pastor could agree to cover some or all actual health care expenses rather than pay insurance premiums. This is not without risk, but I can explain the possibilities for you and your congregation.

Pastors and church leaders, please contact me as soon as possible for details at 559-256-0858 or

This Convention serves our culturally diverse congregations as we fulfill the Great Commandment and the Great Commission.