It’s mid-October and your company is already asking you to make decisions regarding next year’s benefits. My wife’s open enrollment period ended last Wednesday and my open enrollment period ends this coming Friday. I’m assuming, if you work for a large corporation, you’re all in the same boat.
Most years, you probably spend about 20 minutes trying to figure which health plan makes the most sense for you.
“Do I want an EPO or a PPO?”
“How many times will I go to the Doctor next year?”
All difficult questions…
Most of your companies probably have some sort of Tutorial or Wizard that recommends which health plan is best for your specific situation, after asking several questions. The wizard probably suggests the cheapest, most-basic HSA; but, you ultimately choose the most expensive plan instead.
Even though it’s going to cost you more because you rarely go to the Doctor, the maximum coverage gives you some peace of mind.
That’s fine, though. I’m not too concerned with your selection of Health Insurance. Overspending, in order to cover medical “what-ifs,” isn’t the worst financial mistake you can make. However, neglecting to take advantage of all available benefits IS a big mistake.
It’s estimated that roughly 30% of employee compensation is in the form of benefits (an increase from 27% a few years ago).
One benefit that is underutilized year after year is the Flexible Spending Account. I have explained what a Flexible Spending Account is in year’s past, but I think it’s worth mentioning again.
Do you plan on getting Lasik Eye Surgery next year so that, when you’re at the beach, you no longer confuse pretty pre-teens with colorful cougars?
Do you plan on getting Invisalign so that, on Halloween, people don’t compliment your ability to pull off “Beetle Juice,” even though you didn’t dress up?
Can you foresee ANY sort of medical cost that will not be covered by insurance?
Do your kids attend day-care because you and your significant other work?
If you answered “yes” to any of the above questions, you should consider contributing to a Flexible Spending Account.
How A Flexible Spending Account Works
With a Flexible Spending Account, you are able to make purchases with pre-tax dollars. If you are regularly taxed at a rate of 25%, you receive a 25% discount on any purchases. Something that normally costs $2000 will only cost $1500.
I am anticipating a large medical expense next year that will not be covered by insurance. Therefore, I am contributing the maximum of $2500 to my Flexible Spending Account. The Affordable Care Act imposes a $2500 limit on salary reduction contributions to a health FSA for 2014 (the limit used to be set by the employer). Important note: There are minor differences between Health FSA’s and Dependent Care FSA’s.
By electing a contribution of $2500, I will be able to spend $2500 on January 1st. A deduction will then come out of my bi-weekly paycheck in the amount of $96 for the entire year (26 pay checks). It seems very straight-forward, but there’s a gamble aspect as well.
If, come December 31, 2014, I did not spend my entire $2500, I LOSE IT. But, if I leave my employer or get fired on February 1st, 2014, I do not have to pay this back. THIS IS A BIG DEAL.
Most Human Resource representatives will tell you that, if you leave early, the difference will be taken out of your last paycheck. However, IRS regulations forbid employers from requiring you to pay back the difference.
Have you made your benefit elections yet? Did you contribute to a Flexible Spending Account?