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How a Cafeteria Health Insurance Plan Works
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What comes into your mind when you hear the word ‘cafeteria’? To most people, the first thing that might come into their minds is a place where you can eat food. But there’s more to just being a place to eat.
If you’re not new in the insurance world, you probably know that a cafeteria is a particular benefit given to employees that was selected from a company plan which offers variety of choices to suit their individual needs.
As the name ‘cafeteria health insurance plan’ suggests, it is a plan which allows employees to choose where their benefit dollars are to be spend. Code-section 125 allows employers to provide their employees the choice between a cash salary and varieties of non-taxable benefits.
Qualified benefit includes health-care, dental and vision care, adoption assistance, disability, and other certain benefits. Flexible spending accounts may also be offered to employees by their respective employers. It may be a cafeteria plan that provide for coverage which specifies reimbursement of incurred expenses.
The plan provides several selections which include medical, disability, accident, dental, vision, and group life insurance. Actual medical expenses are reimbursed, including children day care.
These things are done with pre-tax dollars. These benefits are funded not with yesterday’s earnings, but with tomorrow’s. The contributions of the employer to the cafeteria health insurance plan are made pursuant to salary-reduction agreements between employer and employee. The employee will then agree to contribute a certain portion of his/her salary on ‘pre-tax’ basis for those qualified benefits.
The participant does not actually receive those salary-reduction contributions, and therefore not considered for federal income-tax purposes.
Disseminate information on the positive and negative aspects of the cafeteria plan to all your employees; this is your key to a successful implementation. Organize for a staff education so that later on they will not be surprised by the plans unfavorable aspects.
The employer is also benefited with having a cafeteria health insurance plan. Goodwill is one thing that money cannot buy, and the business can get monetary savings. The employer can expect administrative hassles (which can be settled immediately) and a tax return so the plan should be filed. In case there is delinquency/failure to file the tax return, you must observe the strict penalties.
A cafeteria health insurance is just one type of a cafeteria benefit. Employers can ask their employees to contribute for the monthly premiums. The health insurance premiums are known in advance by the employees. A ‘premium-only plan’ is really simple and inexpensive. The plan quickly pays for itself with the combination of potential-tax savings through salary reductions and the ease of administration. You might consider this as a ‘free lunch’.
Cafeteria plans generally offers health insurance to company employees, their respective spouses and dependents. Spouses and dependents are only provided with benefits and do not participate directly in the cafeteria plans. You can now see how you can be benefited with a cafeteria health insurance plan. The employer, employee, as well as their families are all benefited. A cafeteria plan might be just the answer to your health insurance needs.
Having a cafeteria health insurance plan in your company requires care in implementation and continuous administration. A cafeteria health insurance plan can give tangible and intangible rewards when it is properly designed and well-maintained. Therefore, your company’s effort is worth it.
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