The premium-only plan is a great product for building a loyal base of small-business customers.
Employers set up POPs using Section 125 of the Internal Revenue Code.
Section 125 is best known for laying out the rules for “cafeteria plans”plans that enable employees to use pre-tax earnings to pay for medical expenses, child care and other eligible expenses.
A POP is a kind of barebones cafeteria plan, organized so that contributions go solely toward paying premiums for health insurance, vision insurance, dental insurance, short-term disability insurance, long-term disability insurance, and up to $50,000 of group term life insurance.
The main advantage of using a POP is a reduction in taxes for the employer and the employees.
Instead of asking employees to pay for insurance with income that has already been taxed, the employer deducts premiums for the coverage on a pre-tax basis, thereby reducing the total taxable payroll.
Employers can reduce the cost of FICA taxes and other payroll taxes by an average of about 10%.
Paying with pre-tax dollars also reduces costs for the employees. The employees tax savings add up quickly: they can easily save an average of 30% on state, federal and FICA taxes.
Employees are the first to benefit from a POP program.
While the employer has now taken on the responsibility of their insurance costs, employees also see an increase in their take-home pay. Once the employees see they are getting a bigger paycheck and employer-sponsored benefits, they may even buy additional insurance coverage they otherwise couldnt afford.
Employers can also benefit from an improvement in employees attitude and work performance.
Plus, POPs are designed for inexpensive set-up and are easy for small business employers to oversee.
So, why arent agents offering POPs to all of their qualified clients?
In many cases, its a simple awareness issue. While most agents know that POPs exist, they are often unfamiliar with the benefits and ease of setting up the plans.
Misconceptions also play a part. Many agents think that the plans are too complex to learn and administer. Both of these issues have prevented POPs from becoming mainstream products. Because of this ignorance, many businesses are totally unaware that such a plan exists, or that they might qualify to use a POP. In fact, only 10% of the businesses eligible to form POPs have formed POPs.
Selling POPs should be easy for agents, because good vendors and insurance carriers bundle all the support tools and educational programs agents need to explain and service the plans.
When considering a POP provider, agents should look for a carrier that provides a complete installation kit.
A good kit should include step-by-step instructions; answers to common employee questions; personalized plan documents; free access to a toll-free POP information hotline; announcement letters for employees; and enrollment and administrative forms.
is senior vice president of North Star Marketing/John Alden, Milwaukee, a Fortis Health member company. His Web address is http://www.nstarmarketing.com.
Reproduced from National Underwriter Life & Health/Financial Services Edition, October 8, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.