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Should My Business Have A Health Insurance POP Plan?

POP plans are a popular option for businesses. However, many small businesses are unsure about what a POP plan is, how it works and what its potential benefits are.

The information below will help you understand this type of plan and determine whether it's right for your business.


What Is An Insurance POP Plan?

POP planPremium Only Plans were created by the Revenue Act of 1978 and are governed by Internal Revenue Code Section 125. With a POP, employees don’t pay FICA, federal, or where applicable, state or local taxes on money used to pay for their portion of employer-sponsored qualified insurance premiums, or contributions to their Health Savings Account (HSA).

The following benefits can be paid for on a pretax basis:

  • Medical Insurance
  • Dental Insurance
  • Vision Insurance
  • Accidental death and dismemberment
  • Disability Premiums
  • Group Term Life Insurance (up to $50,000 in coverage)
  • Health savings accounts

When an employer offers a POP plan, employees have the opportunity to decide how much of their wages will be withheld before taxes to pay insurance premiums. 

Any employer may sponsor a POP. However, IRS regulations prohibit sole proprietors, partners, members of an LLC (in most cases), and individuals owning more that 2% of an S-Corporation from participating, but these owners may still sponsor a POP plan for their employees. 


Businesses Eligible To Set Up A POP Plan 

 The following businesses are eligible to set up a Premium Only Plan for W-2 employees:

  • Sole Proprietorships
  • Partnerships
  • LLCs
  • S Corporations
  • C Corporations
  • Non-Profits

Benefits of POP Plans

POP planSome of the benefits of POP plans for employees include:

  • Flexibility. - Employees are able to choose how much they want to have withheld from their wages each pay period, allowing them to make the choices that are best for them.
  • Less money lost in taxes. - Because deductions are made before taxes, employees are able to take more money home each pay period. Depending on their current tax bracket, employees can save anywhere from 25%-40% on every dollar they contribute for qualified insurance premiums through pretax payroll deduction.

Some of the benefits of POP plans for employers include:

  • Better employee morale - Because employees have access to valuable benefits and they are able to enjoy larger paychecks each pay period, morale often improves. In fact, the Society for Human Resource Management reports that 71 percent of employees who are satisfied with their benefits feel a sense of loyalty to their employers.
  • Savings on taxes - POP plans save employers money on payroll taxes. For each dollar an employee contributes to one of these plans, the employer will save 7.65 percent on FICA taxes.


Disadvantages of POP Plans

Although POP plans offer many advantages for employees and employers alike, there are also disadvantages to this type of plan.

For example, while this type of plan offers some tax savings for employees, the tax savings available from flexible spending accounts are better. POP plans may also be less comprehensive than other options. Furthermore, because POP plans lower the employees' taxable income, they may reduce other benefits, like Social Security.


How Are POP Plans Administered?

Employees are only eligible to enroll in POP plans:

  1. Existing Employees during the annual open enrollment period
  2. New employees within a specified amount of time after their hire date
  3. After certain qualifying events, such as the birth of a child or a marriage.

All participants must receive a summary plan description that includes details about the plan's benefits, participants' rights and claims review procedure.



It is important to consult an insurance broker to find the right plan for your company and your employees. 

You can learn more in our recent article, Your Step-By-Step Guide to Choosing the Right Health Insurance Plan.

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Craig Prince Craig’s background is quite diverse. His current focus is on Group Health Insurance, Medicare, Life, Disability, and Retirement Income, Keyman insurance, and Business Buy-out policy. Craig enjoys one-on-one with his clients to find the specific need of each employee or individual involved in the process.

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