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Cafeteria Plans (Section 125) and other Tax Savings Health Plans
These uniquely designed benefit plans combine a pretax payment account that can be used for healthcare services and other dependent care expenses, such as child care, with a high-deductible health plan. While each plan is unique, they all save money by lowering premiums, reducing taxes on payroll, thus increasing take home pay. In fact, many of the expenses allowed under these plans are ones that employees are already paying for out of their own pockets with after-tax dollars.
American Benefit Advisors, Inc. (ABA) can help you design and take advantage of the following cost saving plans.
Health Savings Account (HSA)
Health Savings Account combines high deductible/lower premium health insurance with a tax favored savings account set up to help employees manage the increase in out-of-pocket healthcare expenses usually associated with a high deductible plan. Both employer and employee can contribute, tax-free, to the savings account. Money in the savings account can help pay the deductible and other qualified medical expenses, tax free. Once the deductible is met, the insurance starts paying. Money left in the savings account earns interest, tax free and is the employees to keep forever, even they change jobs or medical plans.
Health Reimbursement Account (HRA)
A Health Reimbursement Account combines high deductible/low premium health insurance with a tax favored savings account funded solely by the employer. The account is set up to help employees manage the increase in out-of-pocket healthcare expenses usually associated with a high deductible plan. Money in the savings account can help pay for co-pays and other qualified expenses prior to the deductible being met. Money left in the savings account earns interest and can be carried to the next year.
Flexible Spending Accounts (FSAs)
A Flexible Spending Account is a cafeteria plan under Section 125 of the tax code. It is a tax favored savings account funded solely by the employee through regular pre-tax payroll deductions. The funds (account) can be withdrawn tax-free to pay for eligible medical, dental, vision, prescription and dependent daycare expenses. Employees elect how much they want withdrawn from each pay period, which can be changed annually or upon a qualifying event such as marriage or divorce. The average working employee in America spends more than $1,000 annually on these types of benefits. By participating in a FSA, an employee's taxable income is reduced, which increases the percentage of pay they take home.