An option available to California companies is the Premium Only Plan or POP as it is commonly referred to.
It is actually a part of Section 125 in the IRS tax code.
Section 125's typically are used to describe Cafeteria plans or Flexible Spending Accounts.
These options allow employees to use pre-tax funded money towards specific benefits. The POP is part of the Section 125 universe but it is specific only to tax-favored employee contribution of premium.
Let's take a look at how this works and when is it advantageous to offer.
You can always run your quote here:
The POP works when employees (on payroll) contribute towards their own or their dependent's premium.
The more employees contribute towards their health, dental, and vision benefits...the more a POP makes sense to both the employee and the employer.
In California, according to AB 1673 which mandates guaranteed issue Group health insurance, the employer must contribute at least 50% of the employees premiums.
Some carriers even allow fixed amount contributions down to $100 per employee/per month.
There is no requirement for dependent contribution on behalf of the employer.
With increased medical premium inflation over the past decade, there has been a trend towards cost shifting some of this increase to the employee...especially for dependents.
This means more out of employee's pockets for their healthcare even if provided as employer-sponsored Group health insurance.
This is where the POP comes into play.
This can be a very big deal depending on the tax bracket of the employee.
Let's say an employee contributes $100 monthly and his/her tax bracket is 30%. If his/her contribution is handled through a POP (or pre-tax), it's the equivalent of paying $70 instead of the after-tax $100. This is $360 annually that the employee keeps in real terms.
The Employer also benefits since the FICA contribution is now based on a lower amount.
This savings pretty quickly offsets the cost of the POP which usually runs around $125-150 annually for the employer.
Any size employer can take advantage of a P.O.P.
All you do is adjust your payroll process to deduct the employee portion of your group insurance premiums on a pre-tax basis instead of after-tax.
A P.O.P. can be established for any single employee or certain related employees, including:
The IRS prohibits certain individuals from participating in a P.O.P. These individuals include:
Even though these individuals cannot participate in a P.O.P. personally, their businesses can still benefit from the tax advantages of setting up a POP for their employees.
You can request the online application here:
It's pretty simple really.
There is the initial enrollment process.
Each year, there is a renewal process that is similar to the initial enrollment.
In terms of the day to day maintenance, it requires a simple adjustment in the payroll process.
Third party companies such as Ceridian usually administrate the plan on behalf of the big carriers such as Anthem Blue Cross.
For example, you can elect the POP right on the Blue Cross Employer Application or with a separate POP application.
Blue Cross' Employer's POP Handbook is pretty informative.
Blue Shield also has a POP brochure explaining how it works. Both carriers contract with Ceridian for their offering.
Health Net uses another provider which you can find in their Health Net Group POP brochure. The programs are all pretty similar both in terms of cost and options.