Employer Cafeteria Plans: States' Legal and Policy Issues
Patricia A. Butler, J.D., Dr.P.H.
October 2008
As one avenue for expanding access to health care for uninsured workers, state policymakers may require employers to offer Section 125 plans. These "cafeteria" plans allow employees to use pre-tax funds either to pay their share of the costs associated with employer-sponsored insurance or to buy an individual policy in the private market.
The substantial tax subsidies available through cafeteria plans can reduce the cost of insurance for workers who tend to go without coverage, such as part-time workers or those whose employers do not provide health benefits.
This report reviews the state and federal requirements for cafeteria plans, including the standards governing "highly compensated" individuals and "key employees," as well as employer responsibilities under the federal programs COBRA, HIPAA, and ERISA. A discussion of options and concerns for state policymakers to consider is also included.
The complete report is available under Document Downloads below.