Do you know what benefits your employer offers? Many people have a wide range of available benefits and only use a small portion of them. Your employer likely offers benefits that can help lower your monthly expenses, increase insurance coverage and protection, reduce taxable income, boost savings, and more. Make sure you’re maximizing these five options to avoid leaving money on the table!
1. Health Insurance Coverage Options
Insurance offered through your employer is a colossal benefit that’s often taken for granted. Because this insurance is often a group plan, you can take advantage of varying levels of coverage for significantly lower premiums than if you sought out individual coverage.
It’s also important to note, when you get coverage through your employer, premiums come out of your paycheck pre-tax. This is a phenomenal way to ensure you and your family have sufficient coverage at a discounted group rate, while still lowering taxable income. Of course, there are other insurance marketplace options available, but premiums are often much higher and are paid out-of-pocket by the plan participant.
In general, there are five kinds of health insurance coverage. Each type has varying pros and cons. Depending on the season of life you’re in, different health plans may appeal to your family’s unique medical needs and budget. Let’s go over a few basics:
- Health maintenance organizations (HMOs)
- Low premiums
- Low out-of-pocket costs
- Primary care provider coordinates specialist care through referrals
- Less freedom to choose out-of-network providers
- Preferred provider organizations (PPOs)
- Can choose both in- and out-of-network care (out-of-network care costs more)
- Specialists don’t require a referral
- Higher out-of-pocket costs
- Exclusive provider organizations (EPOs)
- Lower out-of-pocket costs and premiums
- Have to stay in-network for coverage (with the exception of emergencies)
- Point of service plans (POS)
- In-network care is less expensive, but out-of-network is an option
- Referrals to specialists required
- High-deductible health plans (HDHPs)
- Can technically be any of the above plan types
- Low premiums
- Higher out-of-pocket costs
- Opens up the opportunity for a Health Savings Account (HSA)
Choosing a Plan: Questions to Ask
Typically, you can only change health insurance coverage through your employer during open enrollment. During this window, it’s important to consider a few things when determining which health insurance plan is best for you:
Do you have a spouse, children, or other dependents who will rely on you for health insurance coverage?
Employer plans may be dramatically more expensive when you introduce a spouse or children to your coverage options. Make sure to compare premiums and out-of-pocket costs by looking at coverage options from both you and your partner’s employer.
What are your typical annual medical expenses as an individual or family?
A single person with few health concerns will require a different level of coverage than a family with two children under the age of 10. For families who plan to visit the doctor more often, coverage with lower out-of-pocket costs may make more sense.
But if your family has fewer medical needs, a plan with lower premiums and higher out-of-pocket costs that can be offset through intentional saving may be wise. Whatever you choose, it’s important to tailor coverage to your unique needs and budget.
Is provider flexibility important to you, or do you prefer holistic care coordinated by a primary care doctor?
All health insurance plans have trade-offs between types of coverage received and the premiums paid. For example, HMOs may offer your family lower premiums and out-of-pocket costs, but a family who requires unique medical attention from specialists, having to go through a primary care doctor for referrals may be a hassle. It’s important to know your own medical needs and determine how flexible you want your coverage to be.
Do you want access to an HDHP?
An HDHP may be a good fit if you expect relatively consistent medical costs for your family, while also wanting the option to save on medical costs in a tax-efficient way by leveraging an HSA. Additionally, your savings through an HSA rolls over year to year. This means you could be saving for an unexpected medical bill in the near future, or rising medical costs in retirement.
Does my employer’s health plan let me use my favorite provider or specialist?
Ideally, you’ll want to eliminate health plans where your favorite pediatrician or primary care doctor is out-of-network.
Will my plan cover regularly scheduled care?
Make sure your prescriptions and other necessary care all fall within your coverage network to save money on medical expenses.
When choosing a plan, you want to balance the premiums and out-of-pocket costs with the level of coverage you receive. Making sure you find a plan that addresses your needs and the needs of your family (while also fitting into your budget) is key.
2. Short-Term and Long-Term Disability Insurance
In the event of an accident or emergency, does your employer offer short and long-term disability insurance to cover lost wages?
Some states require employers to offer disability insurance while others do not. Even among employers who offer it, there are many different coverage levels.
For example, some employers may offer short-term but not long-term disability. Still others may offer both, but only as voluntary benefits. In other words, they offer the insurance at a discounted group rate but employees are responsible for the premium.
It’s important you know your employer’s specific offerings. In some cases, you may be better off finding your own disability insurance outside the company to maximize protection.
3. Life Insurance
Most employers offer some form of group life insurance. This means they offer one policy, held by the employer, that covers all employees who choose to enroll. As a result, the premium is much lower since a large number of people are enrolling for coverage. The downside to group life insurance is coverage amounts are limited and it may not be portable if you leave your employer. So, although premiums are low, you may need to supplement with additional private coverage to ensure your loved ones are protected.
4. Retirement Plan & Employer Match
There are three primary retirement plans offered in an employer benefits package:
- 401k or Roth 401(k)s (for-profit companies)
- 403b (nonprofit companies and organizations)
- 457 (government workers)
These plans each work similarly, regardless of which one is available to you. Contributions to some plans can be made with pre-tax dollars, which helps lower taxable income while boosting retirement savings. Funds in the account are taxed during retirement and grow through different investments made within your plan.
However, some retirement plans (like Roth 401(k)s) are funded with already-taxed money. These types of retirement accounts accrue and grow interest tax-free. If your employer offers both options, it may be wise to consult with your financial planner about the best plan to leverage.
Usually, employers offer the option to contribute a percentage of your paycheck to your retirement plan. Sometimes, they will also offer an employer match program. A common benefit is for your employer to match 100% of your contributions up to 3% of your salary, and 50% of contributions up to 6% of your salary.
Keep in mind that many employers have a vesting schedule. If you leave the company before the vesting schedule is up, you could forfeit some of the matched funds. It’s worth looking into what your employer retirement plan is, and whether they offer a match.
If they do, you’ll want to contribute the maximum amount of employer match. Why? Because you’ll have extra money funneled toward your retirement over the length of your career. Don’t leave free money on the table!
In 2020, the 401k contribution limit is $19,500. If you’re age 50 or older, you can contribute an extra $6,500 annually to “catch up” on saving before retirement.
5. Flexible Spending Accounts
Even if you don’t enroll in an HDHP insurance plan with an HSA, you can still set aside pre-tax dollars toward qualifying medical expenses! Many employers offer a Flexible Spending Account (FSA) to help employees reduce taxable income and save money for expected medical expenses.
An FSA differs from an HSA because funds don’t roll over year-to-year. Anything you contribute in a calendar year must be used before December 31st, or the funds go away. It can be helpful to map out annual expected health-related costs (doctor co-pays, surgery costs, pregnancy-related expenses, etc.) and contribute to your FSA accordingly. That way you can effectively use contributed funds without losing your contributions made.
Bonus: Fringe Benefits
The benefits listed above are relatively common. Most large employers offer insurance options, retirement savings, and even flexible spending accounts. But people often miss a wide range of fringe benefits employers can offer. Every employer is different, but with a little digging you can usually uncover a handful of unique benefits that positively impact your lifestyle and budget. Let’s look at a few examples:
Whether your employer has a gym at the office or a relationship with a local fitness center, you may be able to get a free or cheap membership nearby.
Yes, most employers offer health, life, and disability insurance – but what about other kinds of coverage? More often than not, your employer will have a relationship with an insurance provider who offers employees in your organization a discount on auto, home, or renter’s insurance. This can be an exciting way to cut costs without much extra effort!
Thinking of going back to school? Interested in a specialty certification program? Many employers offer to fully or partially fund educational opportunities for their employees. In other words, now might be time to get your masters! If this is an option for you, make sure to ask about stipulations. You may be limited by the field of study, or required to stay employed with your company for a set time period.
Student Loan Relief
Some companies offer student loan assistance for employees. They may not be able to fully pay off your loans, but every bit counts.
Need Help Navigating Your Benefits?
Part of your comprehensive financial plan is to gain a deeper understanding of your employee benefits, and ensure you’re maximizing them. At Abacus, we help our clients dig deep to make sure they don’t miss any financial opportunities, big or small. Contact us to learn more!