In a concerning trend for the nonprofit sector, employee benefits costs are rising at an alarming rate, creating unprecedented financial pressure on organizations already operating on thin margins. A comprehensive analysis of CauseIQ data by NonprofitNewsFeed.com, examining 2022-2023 tax year data from 33,804 nonprofit organizations, reveals that those with revenues between $1-11M are experiencing median annual growth of 12.7% in employee benefits costs, with some organizations seeing increases of over 40% year-over-year.
The Scale of the Healthcare Challenge in 2024
The numbers from NonprofitNewsFeed.com’s analysis of recent tax filings tell a stark story:
- The median annual employee benefits cost per organization is $86,698
- Benefits represent an average of 4.2% of total expenses, with some organizations seeing up to 72.2%
- The top quartile of organizations spends more than $195,136 on benefits annually
- Total benefits spending across these 33,804 organizations exceeds $5.27 billion
- The analysis spans organizations of varying sizes, all with multiple employees, representing a broad cross-section of the nonprofit sector
The Larger Healthcare Insurance Cost Trend
According to data from the Bureau of Labor Statistics, over the past 20 years, healthcare premiums have increased by an average of 3.1% annually, significantly outpacing the overall inflation rate, with the total cost of medical care rising by 121.3% compared to a 86.1% increase in the price of all consumer goods and services during the same period; this means that the price of medical care has more than doubled in the last two decades compared to the general cost of living increase.
Private insurance costs consistently outpace every other health care service over the past ~10 years according to data from BLS analyzed by KFF Peterson Health System Tracker.
The Mounting Benefits Challenge in a Declining Revenue Environment
The analysis of recent tax filings reveals a particularly troubling combination of revenue challenges and growing benefit pressures.
While organizations face rising benefit costs, their revenue picture has deteriorated significantly:
Revenue Decline:
- The median revenue decline was 26.4% year-over-year
- Over 16,000 organizations (nearly half the sample) experienced revenue declines of 10% or more
- Only about 3,500 organizations saw revenue growth exceeding 25%
- This decline occurred while median annual employee benefits costs remained at $86,698
- The revenue compression is particularly concerning for organizations in the $1M-$4.9M range, which represents the largest segment (25,524 organizations) of the sample
This revenue deterioration creates a perfect storm: organizations are facing double-digit increases in benefits costs while simultaneously experiencing significant revenue declines. Benefits now represent an average of 4.2% of total expenses, with some organizations seeing up to 72.2% – a proportion that becomes increasingly unsustainable as revenues contract.
2025 Cost Projections Paint a Challenging Picture
Building on the current trends seen in the 2022-2023 tax year data, recent projections for 2025 indicate the pressure on nonprofits will intensify:
- Healthcare costs are expected to surge by 8% in 2025, the largest increase since 2012, according to PricewaterhouseCoopers
- Insurance premiums are projected to rise by 7% as carriers pass through costs, based on analysis from Willis Towers Watson
- ACA marketplace premiums could increase by 6-10%, according to industry projections
- Over half of employers plan to implement changes to manage these rising costs
- Approximately 34% of organizations expect to shift some burden to employees
- The past five years have already seen a 24% increase in family coverage premiums, as reported by KFF (Kaiser Family Foundation)
3 Strategic Implications
The confluence of AI-driven employment changes and rising healthcare costs creates several critical challenges that nonprofits must address to maintain their vital role in the economy and society:
1. Workforce Development
Nonprofits need to prepare for an influx of workers transitioning from AI-disrupted industries while managing escalating per-employee costs. This requires developing robust training programs and career pathways that can effectively integrate workers from diverse professional backgrounds into mission-driven work. Organizations must balance the opportunity to acquire talented, experienced staff against the rising costs of benefits packages that remain competitive with the private sector.
2. Financial Planning
Organizations must develop new funding models that can sustain both higher employment levels and rising per-employee benefit costs. This challenge is particularly acute given the sector’s recent median revenue decline of 26.4%. Traditional funding sources like grants and donations may need to be supplemented with innovative financing mechanisms, earned income strategies, and cross-sector partnerships. Organizations need to build financial reserves that can weather the volatility of benefit costs while maintaining their ability to expand their workforce.
3. Policy Advocacy
The sector needs coordinated advocacy efforts to address systemic challenges. With healthcare costs projected to rise 8% in 2025 alone, nonprofits must unite to advocate for healthcare cost containment measures that acknowledge their unique position as major employers. This includes pushing for increased funding for nonprofit employment programs and specific support for workforce transition initiatives. The sector’s voice in policy discussions becomes increasingly critical as it positions itself to absorb workers displaced by automation while managing unsustainable benefits cost increases.
Looking Ahead
The nonprofit sector stands at a critical juncture. Its potential to absorb workers displaced by AI makes it crucial to the future economy, but this role is threatened by unsustainable increases in healthcare costs. Without systemic changes to address rising benefits costs, nonprofits may be unable to fulfill their emerging role as major employers in the AI era.
Source Links for “The Growing Benefits Burden” Article
Data and charts from CauseIQ.com
Government Data: Bureau of Labor Statistics: “Nonprofits account for 12.8 million jobs, 9.9 percent of private-sector employment, in 2022” (August 16, 2024): BLS Report
Healthcare Cost Projections: PricewaterhouseCoopers 2025 Healthcare Cost Projections (October 2024): PwC Projections
Insurance Industry Analysis: Willis Towers Watson Insurance Premium Analysis (October 2024): WTW Analysis
Healthcare Coverage Data: Kaiser Family Foundation (KFF) Healthcare Coverage Review: KFF Survey
News Release: PR Newswire: “Healthcare Costs, Insurance Premiums Expected to Rise in 2025” (October 28, 2024): PR Newswire Release
