From: acheng@ncsa.uiuc.edu (Albert Cheng)
Subject: Re: Cafeteria Health-Care Program: HELP?
Originator: acheng@shalom.ncsa.uiuc.edu
Organization: Nat'l Ctr for Supercomp App (NCSA) @ University of Illinois
Date: Tue, 15 Dec 1992 17:18:46 GMT


In article <1992Dec14.163128.361@hsh.com>, paul@hsh.com writes:
>My wife is being offered the opportunity, by her employer, to get into a 
>Cafeteria Benefits health-care plan.  Hopefully, some here can offer some
>pros & cons (and perhaps some personal experiences) about this type of plan. 
>
>As I understand the rather skimpy explanation she was given, this is in
>addition to her current medical coverage.  Under this "supplemental" plan, up
>to $2500 of *pre-tax* salary is placed into various Reimbursement Accounts to
>cover such things as medical/dental/vision deductibles and other
>out-of-pocket expenses.  One Reimbursement Account can cover at-work
>child-care expenses (which would be useful). 

You are using terms I am not familiar with.  Maybe your wife's employer
loves fancy terms or I am just ignorant.  Anyway, the at-work child-care
expenses sounds like "dependent care deduction" I have at my college.  My plan
allows pre-tax set aside up to $5000 a year specially for dependent
cares.  Dependents mean any dependents of yours (children, older
parents, ...) that need "daycare" when both spouses are at work.  (I
think that applies to single parent households too.)  All daycare, including
home care, expenses can be paid with this set-aside money.  If you
are in the 28% bracket, you win big.  That is an automatic $5000
tax deduction (equals $1400 Fed tax reduction + state tax, probably
SSTax too.)  You don't have the $2400 per child and $4800 total limit
the 1040 offers for dependent care. 

If you are quite sure about how much dependent care you would incur the
coming year, this is a winner.  My plan offers an escape clause if
there is change in family status (e.g. a new baby) or financial
condition (e.g. change of employment of one spouse.)  The catch is,
like you said, if you don't use all the set-aside money, they are
gone.  (Some plans returns all left-over evenly to all participants.  I
made $5.00 from last year's plan though I used up all my set-aside.)
But think of it this way, even if I can't use the last $100 (and lose
it), I have already won big with the $1400 + state tax + SS tax.
So, if the at-work dependent-care is like what I describe, AND you will
have qualified dependent-care expenses, go for it.

The medical expense part is a bit more uncertain.  (Most people can't
predict illness.)  You just have to guesstimate to your best.  If you
are not sure, sum up the out-of-pocket medical expense you paid this year.
And you can work from there.  Try sign up 90% or 50% of this year's
expense if you really worry about not able to use them up.

>The catches that I am aware of:  the Big One is that any funds left in the
>Reimbursement Accounts are _forfeit_ --gone forever-- if not used by the end
>of the year (that's my wife's money, NOT the employer's).  Another is that,
>since the RAs are funded with pre-tax dollars, her Social Security benefits
>will probably be reduced by the use of this plan.  And, of course, payouts
>from the Cafeteria Benefits plan are _not_ deductible from income taxes. 

You don't have the illusion you will get your money worth from SStax, do
you?  You will get much better return by investing the money in your own
IRA than give it to IRS.  (With Bentsen as the Treasurer to be, a very
good chance the deductible IRA will come back.  I think that will be the
the only tax break Clinton will give to the middle class.)

>The big unknown is that -- knowing her employer -- this may be a prelude to
>paring back her current health-care program, which costs very little and has
>been pretty good to/for their employees.  If that happens, I wonder if this 
>plan couldn't be used as a cost-shift ploy if (for example) they go to basic 
>Blue Cross/Blue Shield, or something, to save themselves money.

If they are planning for that, they will do it whether you join the plan
or not.  May as well reap the benefit now.

>What else should I know?  One thing that bothers me is that the skimpy
>paperwork was given to her on Thursday; the meeting is Tuesday; the sign-up
>session is on Wednesday!  Is it deliberate that she was given not much time
>to learn all about it?

The application forms for my plans are only couple pages (mainly names & SSN
of all family members, deductions per month, and acknowledgement that any
balance are lost at year end, and I should not deduct the same on my 1040.)
I think your wife should talk to other co=workers at work to see if
anyone really understands the offer.  Or you may just type the whole
text here (probably more appropriate in "misc.taxes") and the joint
net-wisdom may help.

Good luck.
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