Cafeteria plans offer flexible insurance options: This type of insurance coverage may benefit small-business owners and their employees.

• Author: Myers, Deborah J.
• Position: Brief Article

At cafeterias, you can pick and choose what you want to eat, depending upon your taste and nutritional needs. "Cafeteria" health care plans, or "caf plans," are so named because they, too, allow for variety. Subscribers select only the benefits they want. Life, dental, health and vision insurance are common items on the menu. Some also include extras such as child care, elder care, prescription drugs and upgraded versions of common items.

Caf plans are often called a "Section 125," referring to the Internal Revenue Code that outlines what employers are required to do to offer a caf plan.

Although delving into IRS codes may seem daunting, once you understand the basics, caf plans can benefit your employees and your company.

The advantages for employees are usually obvious.

"Employees don't want all the same (benefits)," said Jamie Berge, owner of JB Tax & Financial Services in Anchorage. "With cafeteria plans, you pick and choose."

Most companies employ a variety of demographic groups: single men, married mothers, single parents, middle-aged people. The list goes on and on. The needs of each group are guaranteed to be different from the others'.

Healthy, single people usually want an inexpensive plan with no frills. Middle-aged people might want elder care available for aging parents. People with children enjoy the wide-range coverage for the injuries and illnesses their family experiences. People with health maintenance issues want more extensive health coverage.

Unfortunately, most insurance plans are quite rigid; however, caf plans "allow for flexibility," said Jim Gorski, an attorney with Hughes Thorsness Powell Huddleston & Bauman LLC in Anchorage. "It benefits employees."

THE TAX ADVANTAGE

Caf plans also offer employees savings.

"Employees don't have to pay taxes on their premium contributions," Berge said. "The employer holds that money from the paycheck and pays for the benefit pre-tax. You are deferring salary to pay for a benefit you'd pay for anyway.

"If $100 of your salary is going to pay for your day care or health care, you won't be taxed on those dollars," she added. "It's an obvious benefit."

Tax savings also may serve another purpose. "(Caf) plans can cushion the blow of increased premiums," said Amy W Limeres, an attorney with Preston Gates & Ellis LLP in Anchorage.

Although the premium may cost more to the employees, sparing them from the taxes will take the sting out of soaring rates.

"Health insurance is so expensive," said Karen Jordan, owner of Alaska Pension Services Ltd. in Anchorage. "If employees are paying for part of the expense, it only makes sense to set it up pre-tax."

Not only can employees save on the premium, but also certain medical expenses--such as over-the-counter medication, canes and protheses--may be reimbursed, depending upon the plan.

The deductible, if any, also may be paid...