The Premium Only Plan: Cutting Costs Made Easy
A Premium Only Plan (POP) is a great way for employers to reduce healthcare costs for their employees. POPs are a type of IRC Section 125 Cafeteria Plan that allows employees to pay for certain health plan premiums using pre-tax dollars. While using pre-tax dollars to pay for health care premiums is a well-known practice, some employers are unaware that a business must set up a POP plan to take an IRC Section 125 deduction, and most payroll companies do not question the Section 125 deduction or review documents for compliance. Both the DOL and IRS have oversight responsibilities over Section 125 compliance. Failing to comply with Section 125 rules could result in plan disqualification, in which case employee payroll deductions would be treated as taxable and require repayment of the tax savings. Employers would also be responsible for repaying their tax savings back to the inception of the deductions, with interest and/or penalties and DOL fines.
Having a compliant Premium Only Plan is a simple way for employers to increase employee satisfaction and save money at the same time.
Saving money on healthcare doesn’t have to be one-sided. A POP allows employees to save between 15%-40% by using pre-tax payroll deductions contributed toward their premiums, while employers save at least 7.65% on each employee-deducted dollar. Employee savings are based on each individual’s tax rate and employers save on employment taxes on the total employee pre-tax dollar amount.
According to the Kaiser Family Foundation Health Benefits Survey 2019, the average annual US employee contribution is $1,242 for single health coverage and $6,015 for family health coverage. With a POP in place and assuming a 20% tax rate, a single coverage employee would save $248 per year and a family coverage employee would save $1,203 per year. Meanwhile, their employer would save a minimum of $95 and $460 respectively per year in FICA taxes. Taking it a step further, an employer with 20 similarly situated single coverage employees and 35 family coverage employees would save around $16,620 per year in FICA taxes, making a compliant Premium Only Plan a no-brainer.
BASIC POP is offered as a standalone option or included in a fully administered Flexible Spending Account (FSA). Request a proposal and start saving on healthcare costs today!
