What is a cafeteria plan for health insurance? A cafeteria plan is a type of employee health insurance benefit plan offered in the United States. Its name is derived from the fact that these plans allow employees to choose from different types of health benefits, similar to a customer choosing items to eat in a cafeteria. You can pick and choose what you want to insure and subsequently what you want to pay for with your limited health insurance funds.
Features Of A Cafeteria Plan
Cafeteria plans can offer employees such benefits such as health insurance, group life insurance, flexible spending accounts, and more. Some plans (although less now than there used to be) still offer an explicit choice between cash and benefits. This meaning if you want to opt out of getting health insurance, the employer will pay you a dollar amount equivalent to the cost of insurance.
One good thing is that benefits in a cafeteria plan are excluded from gross income as long as the plan meets certain requirements. However, many plans today are operated as a “salary redirection agreement”, meaning that they are a pre-tax payroll deduction. Employers consider this employees paying for their fair share of health insurance or other expenses. However, because these salary re-directions are pretax, employees can actually save in taxes because the money spent on the plans is not taxed by the government.
Changing Cafeteria Plans
A cafeteria plan traditionally has an open enrollment period in which eligible employees must make decisions on what specific benefits they will choose for the next 12 months. Depending on the plan year cycle, for most employees, this occurs at the end of the year.
Once benefit choices are made, they cannot be changed unless a qualifying event occurs. Qualifying events are marriage, divorce, birth of a child, adoption, or death. There are some other events, such as losing eligibility in a plan offered by your spouse.
If a qualifying event occurs, you typically have 30 to 60 days to notify your employer and elect for coverage changes. The coverage changes are then back-dated to the date of the event. For example, if your child is born on January 15, and you enroll on January 30, you will still have coverage in effect from the qualifying event on January 15.
Have you had any experience with cafeteria plans? I’d love to hear your thoughts on them in the comment section below.