I can answer this part: "Alternatively are they not able to take the premium tax credit to the extent the S corporation paid for and deducted those premiums?"

It seems circular at first, but it's really a straight line.

The business pays and reports an expense, because they appropriately put it as a Taxable Fringe Benefit on the W2. That makes it part of Gross pay, so at this step, think of it as part of takehome (just not real dollars) that isn't taken home, the same as a garnishment. Your taxpayer has a taxable income event from this value. Your taxpayer has virtually given back the premium amount (or let the employer retain it), as post-tax dollars for the employer to use to pay the taxpayer's health insurance premium. It's the same as if the employer bonused out the additional amount, and the taxpayer made their own insurance payment.

Which means the taxpayer now gets to use their expenditure on their own tax return as a deduction.