The Strategy
Arbitrage
Employers can realize a fixed payroll tax savings of $501.40 per year, per employee by the implementation of an Employer Sponsored, Voluntary, Self-Funded Benefits Plan. The Managed Health Plan is designed as a supplemental health insurance plan and falls under section 125 of the IRS code. It does not interfere with or replace the employer's current Health Plan. Additionally, employees average a $125 per month increase in net pay. The payroll tax savings and the increase in employees net pay are accomplished through tax arbitrage.
The arbitrage is created by enrolled employees contributing $1200 per month for claims funding. This is done on a pretax basis thus lowering the employees’ taxable income. By lowering the taxable income, the Federal, State, Social Security and Medicare tax is also lowered. Employers save the matching Social Security (6.20%) and Medicare (1.45%) taxes for a total of 7.65%.
Once a week, enrolled employees will receive customized health coaching based on their personal health situation and/or the employees utilize the plan benefits (Telemedicine, Prescriptions, Doctor/Urgent Care visits, added value health services, Direct Primary Care). By doing so, a CPT Code and an Explanation of Benefits are generated, which allow an after-tax benefit of $1,130 to be placed back in the employees’ paycheck. Below is an example of a paycheck where the employee is making $6000 per month, which illustrates the deductions and additions when the MHP is in effect.
The example above illustrates the reduction in gross pay based on the pretax claims funding being deducted. It also shows the reduction in taxes, based on the deduction, and the fixed after-tax benefit added to the paycheck. The result being an increase in the employee’s net pay. Again, the after-tax benefit is generated by utilization of plan benefits and/or the weekly health coaching. There is a huge emphasis on helping employees live healthier lives and prevention of illness.
The example also shows the plan premium of $120. The premium is paid for by the tax savings the employee sees as a result of the reduction in gross income. However, most employees will see an increase in net pay ($125 average increase) even after the premium is paid. Please see the FAQ's for mor information on the plan premium.
There is also a $50 per employee, per month administrative charge to the employer (for TPA expenses). This administrative charge is also paid for by tax savings the employer experiences. The $1200 reduction in employees gross pay equates to a $91.80 gross savings per month, per employee for the employer (employers save the matching Social Security (6.20%) and Medicare (1.45%) taxes for a total of 7.65%). After the $50 administrative charge, the employer sees a net savings of $41.80 per month, per employee ($501.60 per participating employee, per year).
An employer with 10,000 employees would see a fixed payroll tax savings of $5,016,000 per year. There are also variable cost savings associated with the plan related to taking claims away from a company's major medical plan and Workers Compensation Cost Containment.
