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Cafeteria plans are benefit plans that allow employees to choose certain nontaxable benefits (such as accident or health coverage) in lieu of cash, without the employee having to include the cash in gross income. In effect, such plans enable employees to convert what would otherwise be taxable compensation into excludable benefits suitable to employees' own particular needs.
The Health Insurance Portability and Accountability Act of 1996 (HIPAA) was enacted to improve health insurance availability for individuals who lose health care coverage due to changing or losing their jobs. As a result, some of the rules applying to cafeteria plans needed to be changed to conform the accident and health insurance provisions to the new special enrollment rights provided under HIPAA.
In a cafeteria plan, employees have the right to choose among two or more benefits consisting of cash and qualified benefits. A qualified benefit is any benefit excludable from gross income...