Too Busy to Study Your Company's Health Insurance Options? Do These 4 Things
Yes, it's a tedious task. But one hour of your time could be worth thousands of dollars. A former firefighter and paramedic turned financial planner shows how to maximize your benefits.
I saved $3,000 a couple of years ago when choosing a new health insurance plan. My wife and I decided to have a child; after plenty of research, we picked a plan with higher premiums but lower out-of-pocket costs. Coupled with the $1,000 benefit we got for signing up for an indemnity plan, we ended up $3,000 better off than we would have been under the status quo.
How long did this take? It took one hour of planning and research. That's an excellent hourly rate.
Most corporate executives and senior-level managers often go with the status quo rather than diving into the details. I get it.
With their demanding jobs, they work late nights and have never-ending to-do lists. Open enrollment documents can be confusing, consisting of an alphabet soup of acronyms. Should I enroll in a PPO or an HDHP? Do I qualify for an HSA? Do I need STDI and LTDI?
Prior to becoming a wealth planner, in my eight years as a firefighter/paramedic, I saw people from every walk of life battling injuries, illnesses and loss. No one ever wants that to happen, but if it does, the right insurance (i.e., medical, life, disability) can make a significant difference in your finances and your well-being.
Like most other tasks done well, getting it right takes time and research. Instead of becoming bogged down in the minutiae of your plan, here are four recommendations for anyone enrolling in corporate benefits plans this fall:
A Top Priority – Choose the Right Health Plan for You
Let's look at three common types of health insurance. Here's how they work:
A Health Maintenance Organization (HMO) plan usually offers the lowest cost but the least flexibility. A group of medical providers has a contract to provide care; HMOs emphasize cost control and preventive care to offer low premiums and out-of-pocket expenses. But you need to work with a primary doctor to coordinate all care, keep costs down, and see doctors in the network — except for emergencies. A referral is needed to see a specialist.
A Preferred Provider Organization (PPO) is an association of medical providers. It works with an insurance company to offer its services at discounted prices, so getting care within this network holds down costs. There is more freedom under a PPO, because you don't need a referral to see a specialist. But there are likely higher out-of-pocket costs.
As its name says, a High Deductible Health Plan (HDHP) has lower premiums but higher deductibles. These plans often appeal to people with few health issues who likely will not reach the deductible amount, which for 2022 must be at least $1,400 for an individual or $2,800 for a family.
A vital advantage of these plans is access to a Health Savings Account (HSA). These accounts offer the triple tax play. You can save for your future by contributing money on a before-tax basis. Your contributions grow tax-free and, if used on qualified medical expenses, the distributions are also tax-free. A person who makes contributions annually for several years can accumulate a large amount of money if not needed for health care in the meantime.
Enroll In Disability Insurance
There are two types of disability insurance coverage: short term and long term. Many companies provide a group employee benefit at no cost, and individuals may also elect to pay out of pocket for this coverage.
Whatever the choice, I highly recommend long-term disability insurance for most working professionals. Don't brush this off as something you don't need because you'll never be disabled. A car accident can happen at any time, affecting your mobility, vision, hearing and cognitive capabilities. According to LLIS, a 30-year-old is four times as likely to become disabled than to die before age 65.
Disability insurance replaces a portion of your income when you cannot work due to illness or injury. A standard policy typically covers 60% of your base salary and may not take bonuses, commissions and incentive pay into account. Also, there generally is a cap — such as $10,000/month — on your benefits.
A policy coupled with your cash savings may provide enough money. If not, consider purchasing supplemental coverage through your company or a private insurer. And, if you don't have several thousand dollars in an emergency fund, I strongly recommend enrolling in short-term disability insurance. These plans have short front-end waiting periods (seven to 30 days) and can bridge the gap until long-term disability insurance kicks in.
One thing to know about taxes: If you can pay disability insurance premiums with after-tax dollars, any benefit received would be income-tax-free. If your employer pays your premiums and does not impute that cost to you as income, your disability benefits could be taxable upon receipt.
Select the Right Amount of Life Insurance
If your family depends on your income, life insurance is almost always a necessity.
Many employers offer a minimal amount — 1x to 3x your salary — as a group benefit. This is a great start, but you will likely need more if you have children and a mortgage. But how much? To cover outstanding debts, education costs for children, and ongoing income for surviving family members, a simple rule of thumb is to maintain 10x to 12x your earnings. A financial professional can run detailed, personalized calculations for you.
Many companies enable their employees to buy additional insurance; this option is a significant benefit for those who may not qualify for a private policy due to health issues. For healthy individuals, consider obtaining a policy from an outside insurance company. It could be less expensive, and you won't have to worry about portability if you leave your job.
Finally, Don't Miss Out on Possible Extra Benefits
More companies are adding significant benefits that have not been a traditional part of their offerings.
According to the February 2020 MassMutual Financial Wellness Trends Study, 6 in 10 companies now offer or have implemented financial wellness programs at their companies. Other benefits now available at some employers include counseling, vacation buy-up plans, dependent care and Flexible Spending Accounts (FSAs), tuition reimbursement, and other specialized benefits.
Open enrollment can sneak up on you during a busy time of year. But when it begins, take one hour to study your options and make informed decisions about your benefits. Run your numbers, consult a specialist, and ensure this part of your family’s financial planning is in good shape.
About the Author
Wealth Planner, Brightworth
Matthew Broom is a wealth planner for Brightworth, an Atlanta-based wealth management firm. He serves high net worth clients in the areas of retirement planning, investment management, and comprehensive wealth advice. A former firefighter and paramedic, Matthew uses his real-world problem-solving expertise to develop customized financial strategies for the firm’s clients.