Premium Reimbursement Plans, or PRPs, allow employees and employers to pre-tax individual health insurance premiums for themselves and their dependents. This can be a great benefit for both parties, especially in the case where the employer would not otherwise offer health benefits, or is considering canceling them.
If the employer does not offer health insurance, an employee is likely paying for individual health insurance for himself, his spouse and his dependents, outside of payroll. In some instances, employers even increase an employee's wages to help cover these out-of-pocket expenses. The problem with this is that both parties are paying taxes unnecessarily!
By allowing the premiums to be paid with pre-tax dollars, both parties will have visible savings:
|
Employee Name |
Monthly Premium |
Estimated Tax Rate |
Monthly |
Monthly |
| John | 300 | 20% | $60 | $22.95 |
| Susan | 200 | 25% | $50 | $15.30 |
| Steve | 500 | 30% | $150 | $38.25 |
| Mary | 100 | 35% | $35 | $7.65 |
Employer Annual Savings: $1,010
Employee Annual Combined Savings: $3,540
With a Premium Reimbursement Plan, employers save 7.65% on every dollar in FICA and FUTA tax. For employers who would otherwise not offer health benefits, or are thinking of canceling them, offering a PRP can greatly improve a company’s ability to recruit and retain good employees.
With a PRP, employees save 20-40% by paying health insurance premiums with pre-tax rather than after-tax dollars. In addition, employees are able to choose the individual health plan that works best for them, their spouse, and their dependents, unlike a blanket group plan. They can even choose to cover the cost of supplemental coverage such as dental or vision insurance with these pre-tax dollars.