“Cafeteria Plans” Serve Up Affordable Health Insurance Options”
Hungry for affordable health benefits? Ask your employer about a cafeteria plan. No that is not a health plan that lowers you r doctors bills by watching what you eat. Cafeteria plans are so named because of the flexibility they offer and the “menu” of low cost medical insurance options they provide.
In a cafeteria plan you set up a Flexible Spending account, or FSA. You employer is than instructed by you to take out a pre determined amount in pre-tax dollars from your pay check every week to put in the FSA. Funds from the FSA can then be drawn to pay for qualified medical expenses and qualified dependent care.
In addition to qualified medical expenses, other reimbursable expenses can include any group life insurance premiums that your employer does not pay for. Additional qualified healthcare expenses include your out-of-pocket health insurance expenses; premiums, deductibles and copayments.
The two main types of FSAs attached to cafeteria health insurance plans are dependent care and health care reimbursement accounts. While there are no federal limits on how much you may set aside, the normal employer-mandated limit is $2,500 or $5,000 a year.
Your contributions to a cafeteria plan are exempt from federal income taxes and payroll taxes. Employers like cafeteria plans since they save on their share of payroll taxes on the money you deposit into your fund. Most companies have no problem setting up a Cafeteria health insurance plan.
It’s important to remember that reimbursement accounts are use-it or lose-it accounts. That means you have to estimate, as closely as possible, how much you expect to pay in either category of expenses. (Group life insurance premiums not paid by your employer also qualify as an expense for cafeteria plans.) Any unused funds at the end of the year are forfeited to the IRS.
Generally, you can only designate once a year how much you want your employer to withhold for your reimbursement accounts. Exceptions to this rule include marriage and birth of a child.
A similar type of tax-deferred account used to pay for health care expenses is a Health Savings Account, or HSA. Health Savings Accounts are preferred for the self-employed or for and employees that have the option of Consumer Driven High Deductible Health Plans (CDHP)
Currently single people using a Health Savings Account must have a deductible of at least $1,100. For families, the minimum deductible is $2,200. Maximum annual deductible for an individual is $2,850. For a married couple it is $5,650.