Section 125 Archives - PolicyAdvantage.com

Welcome back to another edition of “Benefits Chalk Talk.” In this series at our blog, we provide you with valuable, up-to-date, relevant information about health benefits planning so that you can put the things in place that make the most sense for yourself or your company. At Policy Advantage Insurance Services, we feel that informed consumers can make a really big difference in our industry.

Today we’re going to be talking about “Premium Only Plans” (POP). The big reason we want to talk about this concept, is because there are some significant tax advantages that can be utilized by employers when adopting this strategy.

The concept of the Premium Only Plan (or POP) really is very simple. It’s exactly what it says it is: it’s a program that allows employees of an organization to pay for certain insurance premiums tax-free through payroll. That’s all there is to it. This concept is allowed under Section 125 of the IRS code.

Example: John Doe is an employee at Acme Corp. Acme Corp offers it’s employees an opportunity to purchase individual health insurance policies pre-tax through a Section 125 Premium Only Plan (POP). So, John Doe purchases a $250/month individual plan from Cigna, and submits his claim through Acme Corp’s POP third party administrator. By doing so, John Doe is now paying for his $250 monthly premium on a pre-tax basis (ie: before the government takes their money), and then paying taxes only on his remaining income.

As you can see in the above example, by pre-taxing his individual insurance premiums through a Section 125 POP, John Doe can save a lot of money on taxes over the course of the year. His employer (Acme Corp) can also reduce their FICA/FUTA liability (by ~7.65%).

Here are some of the types of policies that can be purchased w/ a Premium Only Plan (POP):

Major medical individual health insurance premiums (health insurance)
Limited benefit individual health insurance premiums
Dental & Vision
Medicare Part A or B, Medicare HMO (however, Long Term Care policy premiums cannot be reimbursed through a POP plan)
Employer Sponsored Health Insurance Premiums (group plans)
Qualified Ancillary Premiums (Accident Plans, Cancer Plans)
Medicare Advantage and Medicare Supplement Premiums
COBRA Premiums

Thanks for stopping by, we hope you found our information to be valuable. Check back at our blog to get further information about funding healthcare. Also, please share with your friends, clients, colleagues, and family. Here are a few of our other information outlets:

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An insurance plan that pays you cash when you get sick or hurt, right? You got it. That’s the exact concept behind supplemental health insurance. In this blog article… we’re going to describe supplemental health insurance, talk about the different policies that are available, and explain exactly where it fits in.

Here are some examples of the plans that fit into the category of supplemental health insurance:

Personal Accident Indemnity Plan
Personal Cancer Indemnity Plan
Hospital Protection Plan (cash benefits for hospitalizations)
Specified Health Event/Critical Illness Plan (things like heart attacks & strokes)
Vision, Dental, Short Term Disability, and Life Insurance

As mentioned above, unlike major medical insurance (which pays physicians, surgeons, and hospitals)… supplemental health insurance pays the policyholder a cash benefit to use where they need it the most. Yep, you manage the cash benefit yourself. It’s important to understand that it’s different than health insurance. Here are some examples of the places where people use their cash benefits:

Out of pocket medical expenses: cash benefits from supplemental health insurance can be used to pay for things like deductibles, co-payments, and other out-of-pocket medical expenses.
Rent & mortgage payments: in certain situations where someone is sick or hurt, they may need some additional help w/ maintaining their standard of living. You can use cash benefits to make mortgage and rent payments.
Car/Kids/Gas/Utilities/Groceries: if you’re sick or hurt, these types of things continue to go on. Cash benefits from a supplemental health insurance plan can help assist with these kinds of expenses.
Additional Treatment Options & Travel: in certain situations (ie: cancer situations, severe accidents, etc), a patient may want to travel and/or seek treatment outside of the network. They may want to see a specific surgeon, visit a renowned institution for specialized care, have a specific procedure performed, etc. Cash benefits can help with these kinds of expenses.

Depending on the major medical plan that you have in place, and the standard of living you maintain… as listed above, you can see exactly where supplemental health insurance fits in. It can be a very important component of your overall benefits planning strategy (individual & business).

That covers the basics on the concept of supplemental health insurance. Keep in mind that supplemental health insurance is also typically much more affordable than health insurance. It’s a good idea to educate yourself on it, and understand it. It also fits in with any health insurance plan (some more than others).

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