Deciding on Your Employee Benefits
There are few decisions with as much potential financial impact as choosing the right employee benefits package. Since each company has a different set of benefits, it’s impossible to cover all of the particulars. However, we can use a set of principles to guide our decisions.
Principle 1: Determine expected and maximum out-of-pocket costs after tax
If you have two or more options to choose from, it’s important to run a comparison for both expected and maximum out-of-pocket costs on an after-tax basis. Even if at first blush a traditional plan looks less expensive than a high deductible plan with HSA, it may be that the after-tax cost of the high deductible plan is less – all of the money that goes toward the HSA is tax-deductible.
Principle 2: Focus on the long term
If you have an option between a traditional plan and a high deductible with HSA plan, and the overall out-of-pocket costs are similar based on your current health spending, look past the short term. It’s a virtual certainty that you will have health expenses in the future. The HSA allows you to get a tax break for saving money now, grow it with investments, and then pay for health expenses in the future – and never pay federal tax on that money! This can be extremely powerful over longer time periods. Focus on the long term.
Principle 3: Pay for what you KNOW you’ll use
If you have an option to put money toward dental, vision, or flex spending that needs to be used before the end of the year, make sure you’ll actually use the coverage. If you don’t use the coverage, you’ll never recover the money. So if you’re on the fence about vision, dental, or flex spending coverage (i.e. I might get a new pair of glasses) then do not get it “just in case”.
Principle 4: Check ALL of Your Options
The main benefit of employer provided group coverage is that you cannot be denied coverage. For some benefits like group life insurance through your employer, you may be better served by going outside of the group coverage and purchasing your own individual coverage. This is especially true if you’re relatively young and healthy – over time, an individual policy can be much cheaper. In addition to cost, if you change jobs you retain the coverage when you are the owner of the policy.
Looking at health expenses from an after-tax perspective, over a long time horizon, and checking into all of your available options helps you maximize the value of your employee benefits package. The small up-front investment in time to explore all of your options will pay dividends long down the road.
If you need help in analyzing your benefits, call us at 269.985.0200 or email me at: firstname.lastname@example.org.