What are the Components of a Cafeteria Plan?
There are three main components of a Cafeteria Plan that can be implemented separately or in combination. The employer decides which components to include in their Cafeteria Plan. The three most common components are: • Premium Reduction Plan: A Premium Reduction Plan is the cornerstone of a Cafeteria Plan because it offers a benefit to virtually all employees and is the easiest to administer. Under a Premium Reduction Plan, employees elect to reduce their income by an amount equal to their cost for benefits. Then, the employer pays for 100% of the benefit. • Medical Reimbursement Plan: A Medical Reimbursement Plan allows employees to create an account to pay for benefits not covered under the insurance plan (i.e. deductibles, coinsurance and copayments). At the beginning of each plan year, employees decide what amount they want to contribute to the plan. As expenses are incurred, the employee submits eligible receipts to the Plan Administrator and is reimbursed with untaxed dollars. •
