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Health cafeteria plans.

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In an effort to make insurance coverage available and more affordable--and to increase the number of people who use commercial health insurance--several states have expanded the use of health premium cafeteria plans.

A cafeteria plan allows employees to contribute a certain amount of their gross income to a designated account before taxes are calculated. These accounts are for insurance premiums, medical care and expenses not covered by insurance. Employees can be reimbursed throughout the year or as they incur expenses.

A cafeteria plan allows participants to reduce their gross income, thereby reducing the amount they pay in federal, Social Security and some state taxes--a savings of between 25 percent and 40 percent of every $1 contributed to the plan.

The employer also saves, because FICA withholding tax is reduced for each participating employee, usually by about $160 per year. Health premium-only cafeteria plans cost about $100 per year per employee to administer, and several national companies compete for this business.

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Title Annotation:TRENDS AND TRANSITIONS
Publication:State Legislatures
Article Type:Brief article
Geographic Code:1USA
Date:Jan 1, 2009
Words:164
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