FAQ: What is a Section 125 POP (Premium-Only-Plan)?
This post is a follow up to my previous post about Cafeteria Plans (i.e. Section 125 Plans). One of the most common (if not the MOST common) forms of Section 125 plans is a Premium Only Plan (aka "Section 125 POP", "POP plan", "Premium-only Cafeteria Plans", etc.).
A Section 125 Premium-Only-Plan (POP), is a cafeteria plan which allows employees to pay their health insurance premiums with tax-free dollars. Traditionally, these POP plans have been used in combination with employer-sponsored group health insurance plans. However, beginning January 1st, 2009, employees can now use POP plans to pay individual health insurance premiums with tax-free dollars.
Using Section 125 POP to pay for insurance premiums benefits both employers and their employees.
How Section 125 Premium-Only-Plans (POP) Benefit Employees:
Employees save up to 40% on federal income taxes alone. Under a POP plan, an employee's take-home pay is increased, effectively reducing the cost of purchase adequate health insurance.
How Section 125 Premium-Only-Plans (POP) Benefit Employers:
Employers benefit by reducing their tax liability. With POP, employers do not have to pay FICA/FUTA taxes (~7.65%) on dollars that employees use toward the cost of their individual (or group) health insurance premiums.
States Pass Laws Requiring Employers to Offer Section 125 Premium-only-Plans (POP) to Employees.
Most states are considering passing laws effectively mandating that employer offer Section 125 POP plans to their employees. The following states have already passed similar legislation.
||Requires any employer providing health insurance benefits paid partly through payroll deductions to offer a cafeteria plan, effective October 1st, 2007.
||Requires an employer who chooses to participate in the Cover Florida Health Care Access Program to offer a Section 125 plan
||Tax Credit Program
||Requires that an employer offer a Section 125 plan to be eligible for certain tax credits.
||Requires the Commissioner of Insurance to "assist employers with twenty-five or fewer employees with (voluntarily) implementing" Section 125 POP plans.
||Requires all insurers to offer POP plans.
||Working Families and Small Business Health Coverage Act
||Requires employers (with 1-9 employees) who participate in a subsidized plan to offer Section 125 plans.
||Chapter 58 of the Acts of 2008, section 48
||Requires all employers with >10 employees to offer a POP Plan.
||Requires all employers with >10 employees (who do not offer health insurance) to offer a Section 125 Plan for individual policies.
||Requires all employer providing health insurance benefits to offer a Section 125 plan.
||Requires employer with >24 employees to offer a Section 125 POP.
||S 333 & G 3360
||Requires employers (who offer Section 125 plans) to automatically pay insurance premiums through a Section 125 plan.
||Requires employers who participate in the state's Health Insurance Partnership program to offer premium-only cafeteria plans.
SRC: NCSL Website
How Do Employers Administer POP Plans?
According to the National Conference of State Legislatures (NCSL), it costs approximately $100 per year per employee to set up and administer a Section 125 POP plan. Several national companies (including Zane Benefits, Inc.) compete for this business.
Note: This should not be taken as legal or tax advice.