Tony Novak profile picture
  "AskTony" column archive        


Most Popular

AskTony Archive

This Web site contains a compilation of more than a thousand consumer finance  columns written by Tony Novak from the 1980s through 2006, updated and reformatted for maximum usefulness today.  New material was added after 2010.

Content is the opinion of the author and does not represent the position of any other person or entity. Information is from sources believed to be reliable but cannot be guaranteed.

The author is paid for product endorsements and has an ownership or other financial interest in the businesses related to the topics covered.

New questions

Submit consumer finance questions at and health insurance questions at

Sponsored by: Insurance Exchange - your source of valuable information on state and federal health reform benefits.

Core Health Insurance - America's favorite mini-med insurance  with affordable premiums, freedom to choose providers, optional PPO discounts and guaranteed eligibility regardless of medical conditions.

Please support the Web sites that make publication of AskTony services possible.

Health plan for small church

originally posted: 11/22/2006  reposted: 2/18/2011 This post has not been recently reviewed or revised by the author and may be out of date. If you notice an error or are in doubt, please send a new question by email or ask for an update. Email

Q: I am the Church Administrator at a relatively small church in western New York. We purchase our health care insurance through our local Chamber of Commerce and have generally been satisfied with their offerings. Each year, as premiums have risen, the church has just paid the increase to maintain relatively comparable coverage. However, this year the premiums dropped (due to reduced coverage / higher co-pays, etc.). This now leaves us with money in the budget intended to provide health care / insurance for our employees but, seemingly, no way to do so tax free. I have been investigating FSAs and HRAs but keep bumping up against document, set-up and on-going administration fees that burn up most of the "excess" funds. I think I am interested in a self-administered HRA (at least for this year) to allow us to pay out this benefit for health-related benefits. On the other hand, an FSA may be the better approach in the long run in which case I may be able to fund the document and set-up fees with this year's "excess" so that next year's program can provide more direct benefits. In short, I'm looking for a low-cost way to set up an arrangement for our staff of 5 or so employees. Can you recommend any direction to go next? Any publications that would help me understand how to go about this?

A: Your approach is right on target and the cost should be no more than $12 per month regardless of the direction you choose. Feedback has been overwhelmingly positive from the churches where we have added a Health Reimbursement Arrangement to supplement the health insurance benefits. Keep in mind that the key distinction between an HRA and a FSA is the source of the money used to pay for benefits. HRAs are always paid for by the employer (the church in this case). FSAs are funded primarily by voluntary reduction of salary to cover health expenses that are not provided for in the employer's other health plan(s). Due to the intimate relationship between staff and "employer", churches tend to fund benefits as a separate issue from salary, so salary deduction plans are rare. For this reason, churches tend to use HRA plans more frequently than FSAs. The nature of the relationship between churches and their employees is likely one of the reasons that these benefit plans work out so well. These tend to be well-designed, well-communicated, efficient and responsive to the changing benefits needs of the employees. But if you are going to set up a FSA anyway, why not include other voluntary benefit options in a full scale Section 125 cafeteria benefit plan? The cost is the same regardless of the type of plan selected; $150 for setup and, if necessary, $150 for an independent health claims report. The claims accounting schedule is entirely up to you - annually or quarterly are most popular choices with small churches. More information and a worksheet to help you design the benefit plan are available at . There is also an article that summarizes the key differences between an HRA and a FSA.


More resources:

Freedom Benefits Small Business Benefit Plans Comparing a HRA, HSA and FSA: Which One is Right for You?