It’s benefits season, and that means it’s time to make sure you’re choosing the most cost-effective benefit options, while balancing your choices with your risk tolerance. Like your investments, picking benefits comes down to your personal ability to deal with risk and stress, which will play a role in determining the best benefits plans for you.
If your company offers several health insurance options, it’s wise to consider all of them. For your available options, remember to consider:
- Monthly premiums
- Maximum out-of-pocket
- Fully covered visits and procedures
- Co-pay amount Prescription benefits
- The plan deductible
- The percentage of each medical bill that you’ll pay.
It’s helpful to tally up the number of doctor visits you have in an average year, and the health issues you can anticipate based on existing conditions in the coming year. Decide which coverage option offers the best value in your least expensive year, and which would be best if you experienced a catastrophic health event.
I know people who are comfortable choosing a plan with a high deductible or out-of-pocket cost, knowing they’d have a huge bill if something devastating happened. Usually, everything is fine and they pay a relatively small amount annually. But, if you make that choice you’ll want to consider the downside. I have friends on a payment plan with the hospital, despite having had health insurance when their daughter became ill, because their coverage was the cheapest option with the highest deductible and a huge maximum out-of-pocket.
Similar to conservative and aggressive investing, you’ll want to think about your “benefits personality.” If you’re an aggressive personality who doesn't mind a little risk, the cheaper plan with less coverage may be best for you. Conversely, if you’re a worrier who prefers not to stress about health costs, you may be better served by a higher-end option. A little higher monthly premium is worthwhile if it eases your mind.
Dental and vision insurance aren't always available. If you have one or both options, they’re usually fairly inexpensive. Vision insurance is cost effective for people who wear glasses or contacts and buy new eyewear regularly; dental insurance is probably a good deal if you visit your dentist twice per year. But beware: you’ll still pay a lot for major dental procedures and expensive glasses. To fill in the gaps if you anticipate expensive dental or eye procedures, look to your medical flexible spending account.
Flexible spending accounts (FSA) are one of my favorite options. If your company offers them, they can be a great hedge for the more risk-averse among us who are worried about medical costs. FSAs are pre-tax accounts, so participation reduces taxable income. The IRS allows you to set aside up to $5,000 per household in a dependent-care FSA and up to $2,500 per working spouse in a medical FSA. Most full-time working families will easily exceed $5,000 annually in paying for daycare.
Of course, the problem with FSAs is that you must use the money within the calendar year or lose it. If you participate in a medical FSA and haven’t spent all your savings by December 2013, you can use the funds for some over-the-counter medications, several other non-prescription items often found in a pharmacy, contact lenses, glasses, non-prescription sunglasses and more.
Life insurance provided by an employer is a great deal for anyone who has dependents or wants to cover his other loved ones if the worst happens. Even if you have to pay for part or all of the coverage, rates are often extremely competitive since your employer can buy in bulk. And employer-sponsored health insurance may allow you to skip the underwriting process.
Your 401(k) account is the secret weapon of your benefits. Though 401(k) enrollment and participation isn’t typically limited to the standard benefits enrollment timeframe, it’s a great time to revisit your retirement plan as well to balance your budget, find extra money, and increase your 401(k) contributions.
Scott Holsopple is the president and CEO of Smart401k, offering easy-to-use, cost-effective 401(k) advice and solutions for the everyday investor. His advice has been featured on various news outlets, including FOX Business, USA Today and The Wall Street Journal.