It’s November, the Holidays are upon us, and company benefit election time is here (for most of you)!

Most people skim through their benefits and select everything within minutes, don’t be most people.

According to the U.S. Bureau of Labor Statistics, a company’s benefit package consists of 32% of an employee’s total compensation. You should definitely consider taking some time to understand what is making up roughly ⅓ of your pay.

Today, we’re going to go over how to maximize your benefits.

Let’s talk about most everyone’s most important benefit - health insurance

Employer-Provided Insurance Coverage

Health Insurance

One of the most crucial components of your benefits is health insurance; let’s discuss the key parts you need to know.

PPO vs HMO

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Health Insurance

One of the most crucial components of your benefits is health insurance; let’s discuss the key parts you need to know.

HMO vs PPO

What is a PPO? PPO stands for Preferred Provider Organization and it allows you to access a network of healthcare providers that will perform services for you at an agreed-upon rate. PPO plans will have the largest network of healthcare providers. This increased variety of providers also comes with a comparatively higher price tag when compared to other health insurance options.

The other plan often offered is an HMO plan. HMO stands for Health Maintenance Organization. Similarly to the PPO it also offers a network of healthcare providers that will perform service at agreed upon rates. However, the network is usually much more limited than its PPO counterpart. This in turn makes the HMO a lower cost alternative to the PPO. 

Most employers offering benefits will give you the choice of either plan (often more than one option of each). 

So how do you choose what’s best for you?

You’ll want to take a look at the cost of care at multiple levels. The first layer of cost is the plan’s premium - this is the upfront cost of your plan and is deducted from your paycheck. 

The next determination is how much you anticipate you’ll use your insurance in the given year. Take a look at the deductible of the plan. This is the amount of money you need to spend out of pocket before insurance begins to share costs with you. Typically the lower the deductible is, the higher cost the plan will be. 

Finally, consider your risk tolerance. What is the maximum amount you are willing to spend out of pocket in the case of a catastrophic event? The out-of-pocket maximum is listed on your plan’s brochure. A lower out of pocket max comes at an increased cost, but a lower risk of overall financial exposure.

Before selecting a plan, make sure you are comfortable with the network you’ll have access to. If you’re used to seeing the same providers year over year, and you switch coverage, you might be disappointed if the new plan does not include those same providers. 

When making your selection, don’t leap at the chance to pick the lowest cost/highest deductible plan. If you are someone that uses a lot of healthcare, this can get very expensive quickly, as you’ll need to reach your deductible before your plan starts to benefit you. However, if you do not spend a ton on health insurance, yearly, getting the lowest deductible/highest cost plan to cover you for lower expenditures might also not make sense. Try and really consider what you think the next year will look like for you healthwise and understand what your coverage provides you/

HSA vs FSA

HSAs and FSAs can be easily confused, but they are very different. 

HSA stands for health savings account. It provides you an investment fund that can be used for qualifying medical expenditures. Similarly to a retirement account, you can defer income and invest your contributions. That investment grows tax free and is withdrawn tax free when the funds are used for medical care. The list of qualifying expenditures is long and wide ranging. It can be found here. In 2023, you can contribute a maximum of $7,750 ($8,300 in 2024) if the insurance plan is a family plan, or $3,850 ($4,150 in 2024) for an individual. These funds can be held until used in perpetuity. 

The FSA stands for flexible spending account. Similarly to the HSA it takes in pre-tax dollars and can be used for healthcare costs. You can contribute up to $3,050 in 2023 to your FSA. The big difference between the FSA and HSA is that the flexible spending account funds are more-or-less use it or lose it. If you have leftover funds, oftentimes they are returned to the employer. Some plans offer a max rollover of $610. 

Something to think about concerning the HSA: if you can afford healthcare costs out of pocket, now, let your HSA grow for future use. For most people, your healthcare costs when you are at retirement age will be much higher than they are right now. Having a dedicated fund that has grown tax free and is used tax free can be hugely beneficial. I’m a big fan of HSAs, but you don’t want to just default to selecting an HSA eligible plan if a low deductible plan is better for you. 

Dental and Vision

Dental plans are varied, so make sure you have an understanding of what you’re opting into. Some things that are typically standard are covered preventative treatment, such as biannual cleanings, x-rays, etc. Most of the time, with dental insurance, you pay pretty close to what the actual costs would be out of pocket, as it’s relatively easy to predict yearly costs for dental care. Dental insurance is usually less advantageous than health insurance, but it’s something most people still want to have. 

Vision insurance is excellent if you wear glasses or contacts. You will likely want to elect into this as it will cover routine eye exams to update your prescription, cover your new glasses, cover your contacts, etc.

Short Term And Long Term Disability Insurance

Many people neglect disability insurance. They don’t think the worst can happen to them, but unfortunately, in reality, this is far from the truth. According to the National Fibromyalgia Association just over 25% of today’s 20 year-olds will develop a disability before they retire. During your working years, your most valuable resource is being able to generate an income. Don’t allow your hubris to be your financial ruin. We want to insure your income for your working career. 

In most cases, your benefits package will include an option to elect into short-term and long-term disability. If the employer covers the cost of the insurance, the benefits will be taxable when they are paid out to the disabled individual. This can be avoided if the option for employees to pay is offered and elected into. Employee paid disability insurances pay out tax-free. These plans are low cost and the tax savings will drastically outweigh the added cost to the insured. Choosing to pay for this insurance is definitely something to consider.

People can get hung up on short-term disability - it’s more expensive, but one of the goals of this insurance is to protect you from loss of income. An alternative is making sure you have a well built and maintained emergency fund, however not everyone has this! The answer can be a short-term disability policy.

In contrast, almost no one has enough cash to cover themselves long-term all the way to retirement. Consider an example, Bob is making $150,000 per year and is currently 35 years old. If Bob ends up disabled, they would miss out on nearly 30 years of income of around $150,000 per year. Bob has just missed out on $4.5 million dollars. Bob can protect himself with a long-term policy. At a minimum, consider what the employer offers. Sometimes, for higher earners, external disability insurance is required.

Life Insurance

Most employers will give you around 1-2x of your salary in life insurance coverage for free. After that, you can pay to get more. The problem is when you leave your current employer, the policy does not come with you. So, in that case, you would need to get reapproved for coverage. If your health situation has changed, this can become more expensive for you. Most often, it makes more sense to get external life insurance coverage to protect your family just in case the worst happens to you. 

Regardless, it’s most likely going to make sense to take the free coverage that your employer offers to you. In general, the rule of thumb for how much coverage you need is 10x income if you have kids and have a spouse that works. If you're a single income household, 20x income is typically enough. 

Term life insurance is pretty cheap, overall - so don’t be alarmed at the amount of coverage that you may need to get. 

Keep in mind that if you are in poor health, it may make more sense to buy additional coverage through work - those group plans are usually more cost effective compared to external policies. 

Dependent Care Options

Employees who care for children or disabled persons might be eligible for dependent care benefits. You can contribute pre-tax dollars to a dependent-care flexible spending account (not to be confused with the FSA mentioned along with the HSA earlier). You can be reimbursed for qualified expenses related to the care of your dependents. Again, double check if your expenses are considered ‘qualified’ consistent with this IRS publication. These accounts function a lot like the healthcare FSA - they also operate on the “use it or lose it” basis. Therefore, it’s important to be aware of how much or how little you are going to need in dependent care for the year. 

Employer Sponsored Retirement Plans

You can usually always make changes to your retirement plan during the year, but it’s never a bad idea to review your current strategy. 

For most working individuals, saving for retirement is top priority. It’s not easy, but necessary. One of the best methods to achieve enough accumulated funds to stop working is an employer sponsored retirement plan. They usually include some type of match and will allow you the option of contributing post-tax (deferring income and reducing tax in the current year) or post-tax (Roth) dollars. Regardless of which of those options you select, the match is always pre-tax. 

Here is a non-exhaustive list of best practices:

• Contribute at least up to the match (don’t leave that free money your employer is trying to give you on the table)
• Increase yearly as your income goes up
• Have a strategy when it comes to whether you are contributing post-tax or pre-tax dollars
• Start as early as possible
• Make sure your investments are diversified and the underlying funds are not too expensive
• Understand the duration of time you must be employed before the match vests
• Pick an investment allocation and stick with it

Finally, here are some other benefits that are sometimes offered that you might want to consider:

• Free parking
• Catered lunch
• Legal assistance
• Tuition reimbursement/support
• Gym memberships/discounts
• Professional development programs

I leave you with this: in all things company benefits, take your time! Understand what you are being offered.