Cafeteria Plan (Section 125)
An employer plan letting employees choose among cash and qualified benefits (health premiums, FSAs) with pre-tax dollars; benefits chosen are excluded from income.
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Practice This Concept
For an HSA to be offered through an employer-sponsored group arrangement, the group health plan must:
Be a high-deductible health plan (HDHP) that satisfies Internal Revenue Code requirements — An HSA can only be paired with a qualifying high-deductible health plan (HDHP) under Internal Revenue Code Section 223. The group plan must meet the applicable deductible and out-of-pocket maximum requirements, and the individual must not be covered by another non-HDHP plan that would disqualify HSA contributions. Employers often combine the HDHP with a cafeteria plan so employees can contribute pre-tax. This group design question falls under the consumer-driven health plan (CDH) modes examined in AH-III.B.1b.
National insurance concept
A Section 125 cafeteria plan allows an employee to:
Pay their share of health premiums with pre-tax dollars, reducing the employee's taxable income — Under IRC Section 125, a cafeteria plan lets employees choose between cash and qualified benefits. If the employee elects health coverage, their premium contribution is deducted from wages before federal income and payroll taxes are calculated, lowering taxable income. This group-market design makes coverage more affordable and is a common element of the consumer-directed, pretax benefit structures tested in the group medical expense domain. Cafeteria plans also let employees choose among other qualified benefits beyond health coverage, such as dependent care.
National insurance concept
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