Preventative Health Initiative (PHI): A Tax-Efficient Wellness Program for Enhancing Employee Health and Reducing Employer Costs

Introduction: With only 37 business days left in the year, employers are running out of time to capitalize on valuable tax incentives that can shape a healthier, more financially efficient future for their companies in fiscal 2025. The Preventative Health Initiative (PHI) offers a unique opportunity to reduce payroll taxes while enhancing employee benefits. As a strategic wellness program designed for compliance and tangible financial impact, PHI is an underutilized tool that could drive both bottom-line savings and employee engagement.

This article serves as an urgent reminder and a comprehensive guide to PHI, outlining its compliance framework, tax benefits, and wellness offerings to demonstrate why this program could be one of the most beneficial moves your business can make before the year ends.

Abstract: This article examines Project Blue 's Preventative Health Initiative (PHI), an innovative wellness program that integrates tax-saving opportunities with employee health benefits. Through a structured, legally compliant program, PHI allows businesses to improve employee well-being and reduce healthcare costs while accessing significant FICA tax credits. This paper outlines the compliance framework, financial mechanics, and health benefits of PHI, demonstrating its value for businesses seeking cost-effective, health-oriented employee benefits.

1. Introduction: The Case for Workplace Wellness Programs

Rising healthcare costs have placed financial strain on businesses and employees alike. The increasing prevalence of chronic health conditions, many of which are preventable, has pushed healthcare expenditures higher, highlighting the need for proactive workplace wellness programs. PHI addresses this challenge by blending health management strategies with tax efficiency.

PHI has been meticulously structured to align with federal compliance standards, adhering strictly to the letter of the law. Each aspect of the program—from tax credits to wellness benefits—operates within the parameters of IRS, ACA, ERISA, and HIPAA regulations, ensuring businesses benefit from a compliant and secure wellness solution. Drawing on guidance from The CPA Journal article, “20 Questions About Establishing a Health & Wellness Program in the Workplace,” PHI follows the precedent set by the Affordable Care Act (ACA) in incentivizing health-forward workplaces. This program offers employees preventative health resources while saving employers money through payroll tax credits, making it a valuable addition to any business’s benefits strategy.

2. Compliance Framework: Aligning PHI with IRS and ACA Regulations

Project Blue designed PHI with strict adherence to IRS and ACA guidelines, ensuring the program is fully compliant with laws governing employer-sponsored wellness programs and tax benefits. PHI is structured around two primary tax provisions:

1. - IRS Section 125 (Cafeteria Plans): This section allows PHI to collect pre-tax wellness contributions, thereby reducing taxable wages for participating employers and employees.
2. - IRS Section 105(b) (Health Reimbursement Arrangements): PHI integrates with Health Reimbursement Arrangements (HRAs) to provide a compliant path for employee health benefits funded by tax-free reimbursements.

PHI’s compliance framework extends to various legal safeguards, including ERISA and HIPAA. Project Blue’s legal and tax professionals conducted a thorough review of IRS Memorandum #201703013, ACA requirements, and HIPAA regulations, ensuring PHI meets all relevant standards. This comprehensive compliance process gives employers peace of mind and audit protection through Project Blue’s CPA-level oversight.

3. Core Benefits of PHI: Health Services and Tax Savings

3.1 Employee-Centric Health and Wellness Services

PHI provides an array of wellness benefits to employees, offering services that are typically cost-prohibitive or inaccessible outside of employer-sponsored programs. Key features include:

• - Telehealth and Mental Health Services: Employees have 24/7 access to Telehealth consultations, therapy options, and wellness coaching, empowering them to manage health needs without costly out-of-pocket expenses or time-consuming doctor visits.
• - Preventative Health Counseling: From diabetes management to dietitian consultations, PHI encourages employees to adopt healthier lifestyles, which reduces the likelihood of chronic conditions and fosters a more productive workforce.

3.2 Financial Incentives for Employers

Participating employers benefit from a reduction in FICA tax liabilities, with an average savings of $500 up to $600+ per employee annually. These savings are applied directly to payroll, improving cash flow without impacting employee compensation. The financial structure of PHI is designed to be cost-neutral; administrative fees are offset by the tax credits generated, ensuring employers only pay from the surplus created by the program.

3.3 Structured, Cost-Neutral Program Implementation

PHI operates with a “no-net-cost” model, which means all program costs are covered by the tax credits and cost reductions generated by the initiative. To participate, employers need only meet basic requirements—10 or more full-time employees earning over $25,000 per year and employees working 30 hours or more weekly on average—and submit payroll reports for underwriting. With immediate application of tax credits, PHI provides a smooth, hassle-free financial benefit to businesses.

4. Financial and Compliance Mechanisms

PHI’s seamless integration with payroll systems simplifies implementation for employers, allowing them to realize tax benefits almost immediately. Upon enrollment, tax credits are applied in the next payroll cycle, and any associated administrative fees are collected 45 days post-enrollment to ensure businesses incur no upfront costs.

Audit Protection and Compliance Assurance

With a compliance-first approach, Project Blue provides 100% audit defense for PHI participants. The program’s design has been reviewed to ensure adherence to all ACA, IRS, HIPAA, and ERISA guidelines, giving businesses the confidence to implement PHI without risk.

5. Operational Model and Scalability

PHI is tailored for easy scalability, making it suitable for companies of varying sizes and structures. Once payroll data is submitted, Project Blue takes care of the rest—from employee onboarding and benefit administration to handling all vendor relationships and app support. This structure allows employers to focus on their core business while maximizing the benefits of the wellness program.

The scalable nature of PHI’s “set-it-and-forget-it” model enables large companies with dispersed workforces to effortlessly implement and maintain the program. Employees can access wellness benefits through an app, completing qualifying health activities to continue receiving benefits. This model supports high participation and compliance rates among employees, further strengthening the program's financial sustainability.

6. Case Example: Financial and Health Outcomes of Implementing PHI

To illustrate the impact of the Preventative Health Initiative (PHI) in a real-world setting, let’s examine a case study involving a mid-sized manufacturing company in the Midwest with 150 employees. Facing rising healthcare costs and frequent employee absences due to health-related issues, the company sought a solution that could improve employee well-being while offsetting these costs.

Disclaimer: For the purpose of this article, the name of the business has been omitted to prevent a barrage of emails and calls to this business. All questions should be directed to the senior expert tax consultants at [Good Fortune.biz](https://www.goodfortune.biz). Each business has its own set of unique criteria and pain points that can be explored with a one-on-one call to determine eligibility, compliance, and set realistic timelines.

Background and Objectives

The company’s leadership was interested in reducing healthcare expenditures, improving employee engagement in health-related activities, and retaining staff by enhancing benefits. After a discovery call with Good Fortune , the company decided to implement Project Blue 's PHI due to its clear compliance framework, immediate FICA tax savings, and the breadth of wellness services offered without any net cost to the company.

PHI Program Implementation

Upon enrollment, the company submitted payroll data, meeting the baseline requirements of employing more than ten full-time W2 employees earning over $25,000 per year and employees working 30 hours or more a week on average. Project Blue then applied the program seamlessly into the company’s existing payroll system. PHI was introduced to employees through an app, enabling each participant to access 24/7 telehealth, mental health support, personal wellness coaching, and other services designed to promote long-term health and reduce chronic disease risks.

Results After One Year

1. Tax Savings: The company achieved $93,550 in FICA tax reductions in the first year. This savings directly impacted their payroll, offering immediate cash flow relief without decreasing employee take-home pay.

2. Health Improvements: With access to mental health counseling, Telehealth, and wellness coaching, employees became more proactive in managing their health. The company reported a measurable decrease in sick days, with employees able to use Telehealth for common health concerns rather than scheduling costly in-person visits.

3. Employee Engagement: PHI’s services fostered a noticeable increase in employee engagement. Participation rates in wellness activities reached 85% by the end of the year, a significant improvement from prior health initiatives. Employees appreciated the program’s easy access through the app, and PHI’s wellness coaching and mental health services received particularly positive feedback.

4. Retention and Recruitment: The company noticed improved employee retention and reported that PHI made a positive impression on potential new hires. The program’s comprehensive wellness and mental health services set the company apart from competitors and helped attract new talent in a competitive labor market.

5. Reduction in Healthcare Costs and Employee Benefits: PHI’s preventative health focus led to an impressive $2,070,000 in PHI benefits with no out-of-pocket cost to the employer. As an added incentive for employees to take proactive steps toward better health, each employee received a $100,000 cash value whole life insurance policy with an average monthly deposit of $1,500 per employee, resulting in an additional $225,000 in cash benefits for employees. These benefits came at no out-of-pocket expense to the employer, further enhancing the program’s appeal and reinforcing its role in promoting long-term employee wellness.

Conclusion of the Case Study

This case highlights PHI’s role as a cost-neutral, compliance-driven wellness program that delivers measurable financial and health benefits. By reducing healthcare expenses and absenteeism, increasing employee engagement, and making the company more attractive to potential employees, PHI proved to be

an invaluable asset to the company. For businesses seeking a strategic wellness program that aligns with IRS and ACA regulations while enhancing employee benefits, PHI offers a practical and financially beneficial solution.

References:

1. Karl, P., & Mondi, D. (2021). 20 Questions About Establishing a Health & Wellness Program in the Workplace. The CPA Journal. Retrieved from [The CPA Journal](https://www.cpajournal.com/2021/01/27/20-questions-about-the-establishing-a-health-wellness-program-in-the-workplace/)

2. Project Blue. (2023). Preventative Health Initiative (PHI) White Pages and Compliance Review. Project Blue "White pages and compliance." abridged version of CPA Journal Article.

3. U.S. Internal Revenue Service. Section 125 – Cafeteria Plans; Section 105(b) – Health Reimbursement Arrangements; IRS Memorandum #201703013. US IRS 125- Cafeteria Plans IRS Section 105(b) Health Reimbursements Arrangements

Author:

Shorne "Q" Fortune

Good Fortune

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