Utilizing a federally approved pre-tax premium program you will save money for your practice, provide strong benefits to your staff and increase their take-home pay.

One of the main challenges for physicians is to provide high quality benefits to their staff while maintaining a viable practice bottom line.  Practices need strong benefits to keep good employees, however, paying for benefits will cut into a practice’s bottom line.  Now, physicians can take advantage of a federally approved mandate so that practices can afford to offer employees a strong benefit plan.  The federally approved pre-tax premium program uses IRS Section 125 to help your practice provide tax savings to your staff when they purchase insurance through payroll deduction. 

Your practice’s payroll taxes for workers’ compensation, unemployment insurance and FICA contributions could be as much as 10 percent of payroll. Pre-tax benefit payments will reduce your staff’s taxable income and as a result reduce your workers’ compensation, unemployment insurance and FICA contributions.  So the more your staff participates, the more your practice will save.  Your practice will also save FUTA taxes it might currently pay on re-directed staff premiums. 

How does the pre-tax premium program work?

The pre-tax premium program is built around Internal Revenue Code Section 125, the 1978 tax code which created cafeteria or premium-only plans. Through a premium-only plan, employees can use their pre-tax dollars to pay premiums for an employer-sponsored healthcare plan. This allows you and your staff to start saving immediately on the money they spend for benefits.

What is the cost to the employer?

 The employer pays no part of the staff’s premium. In fact, the employer saves money with a Section 125 Plan. 

How does the pre-tax premium program work for your employees? 

By simply changing the way they currently pay insurance premiums from a post-tax to a pre-tax basis, your staff will see an increase in their take-home pay (this figure will vary based on their individual salaries).

What can the pre-tax premium program do for your employees? 

Because the pre-tax premium program allows employees to pay for insurance premiums before they pay Uncle Sam, employees pay less tax on their income.  In other words, through the pre-tax premium program you can give employees an IRS-approved tax break to pay for benefits. Your staff may choose from a variety of supplemental healthcare coverage options such as life insurance, accident, cancer, critical illness, hospital income, short term disability, intensive care and dental or vision plans.  Because the pre-tax premium program allows employees to pay for benefits on a pre-tax basis, they will pay less tax and have more take-home pay.

What if your practice already has a Section 125 plan; can you offer benefits from several supplemental benefit providers to your staff at the same time?  Yes, you can. Every supplemental benefit provider has key products that differentiate them from each other. You can offer your staff the best benefits from each supplemental benefit provider remembering that the more your staff participates, the more your practice will save in payroll taxes for workers’ compensation, unemployment insurance and FICA contributions.

What can my employees do with the tax savings?

Some participants use the tax savings to purchase supplemental insurance products through the convenience of payroll deduction. Your staff can add those products that best suit them and their family to their personal insurance plans or they can take the tax savings as an increase in take-home pay.

Must employees participate in the practice’s Section 125 plan? 

No, there is no obligation to participate. However, many employees do and business experts say they should take advantage of the program when it’s made available.

Is the pre-tax premium program worthwhile for small practices? 

Usually, yes. It is easy to implement a premium-only plan such as the pre-tax premium program in practices where employees contribute to their healthcare plans.

What are your practice’s responsibilities? 

Your insurance agent will provide all the documents needed to present the pre-tax premium program plan to your staff. If you decide to offer the plan, you must give all full-time employees the opportunity to participate or not participate.

How can you get started? 

The pre-tax premium program Section 125 plan comes with all the materials and information you need to start the program and make it work for your practice. 

Peter Krug graduated from the U.S. Naval Academy and spent several years as a nuclear qualified officer specializing in submarines and personnel management in the U.S. Navy.  He recently retired from the Navy Reserves after 26 years.  In his commercial business career, he has worked in pharmaceutical sales and sales management for over 20 years and has specialized in business to business sales throughout his tenure.  He gathers personal satisfaction from developing “win-win” scenarios for small to medium sized business owners and their employees and mentoring medical professionals in the proper business aspects of practicing medicine.  Peter Krug can be contacted at peter.k@branch46.com 

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