These types of insurance are common. They can include hospitalization, medical and dental care, surgical benefits, maternity care, and beyond this, major medical insurance, for the individual and his family.
Employee benefit plans that require part payment by the employee should be examined carefully to see if they provide worthwhile benefits for the employee at comparatively low cost.
In general, however, this type of insurance carries the same advantage as many other employee insurance plans; being group rather than individual, it is usually cheaper than the individual policy and does not require a physical examination.
Moreover, it can either be fully paid for by the employer (to whom it is a tax-deductible expense) or partly paid for by him and contributed to by the employee.
The inclusion of these types of insurance coverage in the compensation package can be of substantial value to the employee. If the benefits were not available through his company, he would have to arrange for them on his own. To the extent the cost is borne by his employer, it does not have to be paid for by him. The savings he thus enjoys are therefore equivalent to a tax-free raise in pay. These days, it is rare for employers to pay for more than the employee's premium on health insurance. With the costs of health insurance rising, some employers pay only part of the employee's premium. It is common for employees to pay the cost of insuring spouses and children under the company's insurance plan.
A Tax Saving Opportunity: Cafeteria Plans: Fortunately, these out-of-pocket costs can be paid for with pretax dollars if the employer offers a Section 125 Cafeteria Plan. Depending on the plan, premiums, deductibles and co-payments can be set aside at the beginning of the year to be paid out of pretax salary dollars. Employees who are offered such plans would do well to seize the opportunity to take advantage of this tax savings.
Cafeteria plans may also be known as premium-only plans or flexible spending plans, depending on their complexity. Simple plans, known as premium-only plans, allow employees to use before-tax dollars for plan contributions such as their share of medical plan premiums. Flexible spending plans allow employees to select from a "menu" of benefits. They can choose those most meaningful to their needs and pay for them with before-tax dollars. These include such choices as dependent care expenses, insurance deductibles, coinsurance payments and eye care (exams, glasses).
Health Spending Accounts (HSAs): A tax-advantaged way to pay for health insurance deductibles and premiums has been introduced. It established Health Spending Accounts (HSAs) that were created as part of the Medicare Prescription & Modernization Act in 2003. They offer employers, the self-employed and individuals the opportunity to purchase high deductible health plans (lower premiums for all concerned) and allow the insured to establish a Health Savings Account in which they can save and invest 100 percent of the plan's annual deductible up to $5,150 for a family. (For a single person it is up to $2,600.) Employer matches to these accounts are also allowed, but the combined contributions cannot exceed the maximums allowed. Money in HSAs can be distributed tax-free for "qualified medical expenses" that are not covered by the health plan (deductibles, co-pays, excess fees). They can also be used to reimburse the insured for premiums paid on qualified long-term care insurance policies. The health insurance plans that qualify for this program must have at least a $2,000 annual deductible and annual out-of-pocket expenses of no more than $10,000 for families. For individuals the deductible must be at least $1,000 with out-of-pocket expenses of no more than $5,000. Premiums are fully deductible for employees. Contributions made by employers are not included in the employee's income, nor are they subject to social security taxes. If some funds in the HSAs remain unused during any given year, they can be left to accumulate tax-free until needed in subsequent years, or may be withdrawn tax-free due to a disability, death or upon reaching the age for Medicare eligibility. A beneficiary can be named for HSAs in the event of the death of the account holder. If a spouse, it passes tax-free. If a nonspouse, the account is included in their taxable income for the year.
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