Imagine if you could cut hundreds of dollars off your medical bills or save thousands on your kids’ preschool costs without sacrificing the quality of care.
There’s a good chance the opportunity is sitting in your email inbox, buried under the avalanche of messages about office refrigerator cleanups, revised parking garage hours, and your department’s reminders for Favorite Boss nominations.
It’s the note from HR about electing your benefits choices.
Typically, you get few chances to select from the benefits your employer offers. When you start work for a company, you’ll make choices for your first year. After that, you’ll get chances to change those choices — perhaps once each year, with some additional opportunities thrown in for major life changes. So make sure you take advantage of those openings when they occur — you may be able to shore up your coverage and save money, even if your premiums and plan haven’t changed one bit.
1. Open wide and say “Aargh!”
In recent years, health-care insurance premiums have risen substantially but inflation and wage increases haven’t kept pace, forcing us to devote more of our pay for coverage. It’s like finally getting your cholesterol in check, only to find your blood pressure has gone up. The natural response to more thinly stretched paychecks is to cut corners, but don’t do it.
Picking the right health insurance plan can save hundreds or even thousands of dollars. It’s worth the time to work through your options and find the one that makes the most sense for you and your family.
2. Custom health-care coupons
Interested in 30% off out-of-pocket medical or child-care expenses? Then sign up for your company’s medical or dependent-care flexible spending account (FSA). In a nutshell, FSAs are funded by you with pre-tax dollars taken out of each paycheck. When you incur expenses not covered by your health insurance plan (or when you write a check for dependent care), you can submit the receipts and be paid back with the money you set aside.
Who’d pass up such savings? A shockingly high percentage of people, evidently. Surveys show that as many as 80% of employees with access to FSAs blow it off, and just 3% of employees take advantage of dependent-care FSAs. What’s with the laggard attitude? See if these excuses sound familiar:
- “I don’t have enough out-of-pocket expenses to make it worthwhile.”
Oh, really? Typically, you’ll be stuck with the tab on all of the following services: doctor visit co-pays and deductibles, prescription co-pays, over-the-counter meds, orthodontics, Lasik eye surgery, contact lenses, birth control, psychotherapy, acupuncture, and weight-loss/smoking-cessation programs. (See your plan’s pamphlet for a complete list of qualified expenses.) Child-care expenses like nannies, au pairs, and nursery schools are all usually qualified dependent-care FSA expenses. Plus, you can fund a medical FSA with as little or as much as you like, within the annual maximum contribution limit set by your employer, and sock away up to $5,000 annually (the federal ceiling) in a dependent-care account.
- “The paperwork is a pain in my keister.”
If you’re just avoiding the hassle of saving and submitting receipts, talk to the hand: If your family frequents certain physicians or pharmacies — including CVS, Rite Aid, Walgreens, Wal-Mart, and many other chains — you can rely on their records instead of an envelope crammed with receipts. March in and request a printout of expenses each quarter to submit for FSA reimbursement. Dependent-care costs are even easier to track because monthly billing amounts are fairly standard.
- “If I don’t end up using all the money I set aside by the deadline, I’ll lose it.”
Last year, employees forfeited just 4% of contributions in medical FSAs and only 1% of funds in their dependent-care accounts, according to a Mercer Health and Benefits study. Many plans even extend the allowable time frame to incur expenses by two-and-a-half months — so no more scrambling to spend cash you’ve set aside. (Check with HR to be sure.) To nail the right contribution amount, use the worksheet from your plan or fiddle with the FSA calculator at fsaandyou.com. (It’s actually kinda fun!)
- “OK, OK … but what’s really in it for me?”
If you contributed $1,200 (about the national average) to a medical or dependent-care FSA and are in the 25% tax bracket, you’ll save about $420 annually (including federal and Social Security taxes paid), or $35 a month. Stash $3,100 in a dependent-care account — last year’s average contribution — and you’re looking at more than $1,000 in annual tax savings, or $83 a month.
3. Protect your savings from a wipeout
The next benefit you shouldn’t blow off is supplemental long-term disability coverage. Here’s where the spend-to-save model bears out.
Many employers provide short-term disability coverage; some provide long-term disability as well. However, these plans only cover a percentage of your salary while you’re out (usually around 60%) and are restricted by weekly or monthly limits. Plus, when employers pay the premium, the income you receive is taxable.
If a short-term disability turns into a long-term one, and you don’t have additional coverage, you’ll have to tap into your 401(k) and other savings before you’re eligible to receive any Social Security benefits.
Open enrollment may be your chance to buy supplemental long-term disability at a group rate. Besides being tax-free (meaning the benefits paid out are not taxable because you pay the premium), you’ll save a bundle from the administrative and commission discounts your employer gets.
Additionally, when a plan is endorsed by an employer, by law, it must be group-priced. (Insurers cannot price policies by gender.) Women can save more than half off the cost of additional coverage because, statistically speaking, they are more likely than men to spend their golden years disabled and unable to work. That said, guys will still save by buying extra coverage from an employer.
It’s not only the cost savings that makes buying supplemental long-term disability coverage worthwhile: Most plans are portable — you can take them with you if you leave your current employer.
What’s the big whoop? Just try shopping the open marketplace for coverage if you’ve ever been to a chiropractor, used a heating pad on your back, taken anxiety medication, or seen a therapist (even a marriage counselor). You could find yourself paying highway robbery rates because of an inflated risk rating, limited to plans that exclude — for example — back coverage. Or worse — you might be denied coverage altogether.