If the payroll math is:

Gross wages minus tax withholding (no health deductions) = takehome

Then the employer has made a pretty significant error. If there is a missing amount between this math takehome and the Net on the total paychecks, that is likely the health insurance, then it would be the same as if he paid it personally using post-tax dollars, out of his gross wages; you just don't see it stated on the W2 for clarity, but the taxes would be correct.

"for the last three years"

What do the prior years' tax forms show for how this got handled? Were the prior W2s also like this?

"because the S Corp received the benefit of all employee healthcare premiums through a deductions from ordinary income."

Sort of, but not exactly. The one has nothing to do with the other; there should be compliance to both issues. He can't deduct something he has no proof that he paid for, and he didn't pay, because his employer doesn't show the responsibility was shifted to him personally. The employer totally whiffed that ball from a payroll perspective.

"It is still odd that the employer included medical insurance premiums for more than 2% on his K-1. Seems irrelevant to the tax return, at least."

I supposed the person preparing the 1120S isn't giving them guidance, or giving them the wrong guidance, and we don't know if this is why Payroll is wrong, but they reported on the K-1 as they always have. It's sort of like, "Who's on first?" for who is supposed to tell whom about how to do things right.

Many, many, many years ago, you would see Distributions reported for that shareholder-employee, as how the medical premiums got paid. That's no longer allowed.