Rising Health-Care Costs Imperil Coverage for Nonprofit Employees

The escalating cost of health insurance is placing an enormous strain on many of the nation’s charities, leading some groups to cut back on coverage for employees, according to a new report.

That trend is particularly worrisome for nonprofit organizations because they have long relied on health-care benefits to reward their employees, who typically receive far smaller salaries than they could working for a business.

Eighty percent of charities in the study, conducted in June by the Johns Hopkins University’s Listening Post Project, offered health-insurance benefits for their employees, compared with 47 percent of small businesses in a 2007 survey by the National Association of Insurance Commissioners.

But rising costs threaten that coverage, according to the study of more than 400 charities.

Virtually all (98 percent) of those surveyed said they were worried about their organization’s health-care costs. Fifty-nine percent ranked health care as one of their charity’s top challenges.

“Health-care costs are starting to eat us alive,” one charity executive told the researchers.

Another said: “We pride ourselves on taking great care of our employees, but it is increasingly difficult to do so with decreasing revenue and out-of-control costs.”

Seventy-two percent of charities in the study reported that their health-care costs had risen during the past year. More than a third (36 percent) reported increases of 11 percent or more.

While no organizations appeared immune, charities that provide services to children and families, as well as communityand economic-development groups, were particularly hard hit by cost increases.

Cutting Benefits

In response to the mushrooming costs, some nonprofit groups are cutting the benefits they provide employees.

The share of charities that reported offering no health benefits grew by 62 percent since 2004, when a similar study was conducted.

Many groups that still provided some coverage were scaling it back or shifting the burden to employees.

Fourteen percent of charities in the study, for example, reduced their prescription-drug benefit. Thirty-three percent of those providing health coverage increased the share their workers had to pay for drugs and medical services.

The study found that rising costs could jeopardize the services that charities provide.

One survey respondent explained the concern this way: “This organization cannot afford to spend more funding on benefits without directly reducing services.”

‘A Continuing Headache’

Lester M. Salamon, director of the Johns Hopkins Center for Civil Society Studies, said uncontrolled costs could have devastating long-term consequences for charities and the people they help.

“It’s going to make it harder for the sector to attract employees, it’s going to cut into their ability to offer services, and it’s going to be a continuing headache for nonprofit managers who should be worried about coming up with the best ways to educate kids and relieve poverty,” he said.

Mr. Salamon said the plight of charities has largely been ignored during the national debate about overhauling the health-care system, and some proposals — like those that would offer relief to small businesses through the tax system — would provide no assistance to nonprofit groups.

“This is the fourth-largest industry in the country in terms of the size of their work force,” Mr. Salamon said. “It’s as if these organizations operate in thin air.”

The report is available online at http://www.ccss.jhu.edu.