Section 125 Premium Only Plans-Businesses Can Look Forward to State Legislative Promotion

A surprisingly low number of businesses know about, much less utilize, IRS section 125 premium only plans (POP plans) and the immense tax savings they grant. With localized poles indicating that up to 90% plus business owners have never heard of POP plans and national poles approximating less than 15% of employers subscribing to them, a fairly substantial number of businesses are missing out on the savings POP plans offer. They are curious and daunting statistics; with four states requiring varying forms of compliance, and a dozen other states offering promotional and legislatively mandated benefits to employers subscribing to POP plans, employers failing to subscribe risk breaching State requirements as well as missing out on tax-savings ranging in the hundreds of dollars.

Most states began seriously considering the implementation of formally mandated section 125 premium only plans around 2005 in preparation for the requirements and goals of the Affordable Health Care Act. Though legislative requirements were controversial, between 2007 and 2008 four States enacted policies requiring businesses meeting certain criteria to comply to a POP plan and several others began offering benefits and incentives for compliance.

A pattern has emerged among State legislation, and will in all likelihood continue to manifest itself in the form of POP plan friendly policies. The Cover Florida Health Care Plan requires businesses participating in the reform program to comply with IRS section 125 cafeteria plans (A category encompassing premium only plans). Indiana offers a tax credit to employers of up to $2,500 who choose to subscribe to POP plans. The State of Massachusetts has gone so far as to require any business with more than 11 employees to subscribe to premium only plans under penalty of State fines. Between the fierce health care reforms taking place at the federal level and the marked success of premium only plans and their ability to render employer sponsored health insurance accessible and affordable it is estimated that within the next ten years every state will legislatively require most businesses to remain in compliance with premium only plans. For information on current state promotions and requirements, feel free to visit http://www.ncsl.org/?tabid=14515#.TkHNqNC-HnA.

Happily, employers have nothing to lose and everything to gain. Employees contributing to health care premiums in compliance with POP plans contribute to their group health insurance plans before taxes are deducted. Employee take home pay is dramatically increased at no extra cost to sponsoring employers. As a result, employees can afford a wider range of benefits, and retention increases. Premium only plans, aside from the legislative benefits many States offer, also reward subscribing businesses a 7.65% reduction in annual social security and Medicare taxes because of the tax free nature of employee contributions.

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Large Corporations - Success of Money-Saving Strategies and Premium Only Plans

It is well documented and understood by most large corporations that the cost of sponsoring health insurance is generally more than compensated by its benefits. Stronger motivation, higher employee retention, and the time and money saved through reliable insurance serve as commendable rewards for a company with the resources and savvy to sponsor health benefits for its employees. What many large corporations are not aware of, however, are the ways in which premium only plans serve to lessen the burden and increase the benefits of sponsored health plans. Compatible with most managed-care plans, POP plans allow large corporations to sponsor their health care plans at affordable prices.

As of 2011, employer sponsored health care covers the largest portion of insured Americans (approximately 156 million). The most important branch of businesses sponsoring insurance is the large corporation sector; with a 97.8% of large businesses offering some form of sponsored health insurance, the "big business" branch insures more than two thirds of all covered employees. Being such major consumers in the health care market as a whole, these corporations inevitably fall into insurance cost strategy trends. With the recent and dramatic health care premium price increases, the current strategy trend corporations employ involve the utilization of the competitive market via Managed-Care Plans.

While Managed-Care Plans (among other strategies) have benefited many corporations in the short term, national polls indicate that the contemporary benefit strategies have failed to stem the gradual decline of sponsored benefits among large corporations. Over the last decade the percentage of individuals with employer sponsored health insurance has decreased from 69% to 61%. A deceptively slight shift until one considers that the eight percent decrease equates to about 7.3 million individuals losing their insurance benefits. Large corporations interested in augmenting the rising cost of healthcare premiums and thereby avoid the loss of their sponsored health care should consider premium only plans as an affordable and accessible money saving strategy.

Premium Only Plans allow corporations to deduct their employee's premium contributions pre-tax. The tax-free deduction not only greatly increases the take-home pay of the employee, it also equates to approximately 7.65% in annual FICA tax savings for employers. Premium Only Plans are especially beneficial to large corporations, as the tax benefits provided through the subscription of large employee bodies provides a gradually increasing tax return; in effect, large corporations utilizing a POP plan generally have all the costs associated with its initial set-up reimbursed within the first year of compliance. The accessibility of POP plans combined with the legislative promotions occurring nationwide insures that premium only plans are compatible with most pre-existing benefit plans and strategies.

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