wait, can you? Really Losing Money on Your Employee Benefit Plan? the answer is, Yes! many people are now Lost Money due to the excessive nature of opting for employee benefits such as health care and health savings accounts.
In fact, I’ve encountered a variety of situations in the past month alone that highlight the issue, including:
Low premiums, uniform coverage
Flexible spending accounts for both health and dependents
Matching contributions, non-discretionary funds
Health Savings Accounts (HSA)
Comparisons in Wives, Company Philosophy
Don’t let unfamiliar terminology fool you into making poor choices when choosing your employee benefits.
As I was going over employee benefits with a recently married man, he heard the phrase “high deductible” and immediately declined it. he questioned, “Why Would I Want to Pay a Higher Deductible?” The actual cost difference between a high deductible health care plan and a non-high deductible health care plan is often not that large.
I quickly explained that a high deductible health care plan (in his case let’s say there was a $1600 deductible per person) would provide significant premium savings! If there was ever a problem with paying the deductible, she can set aside that money in a health savings account (which is left tax-free) to cover that expense.
Now that she’s married, as a couple, she and her husband can contribute $7,300 to a tax-free health savings account in 2022. In my last few Businesshala articles, I had highlighted (In a three-part series due out in June 2019Why the Health Savings Account is So Great. Think of it as a “Medical Roth Individual Retirement Account” with the benefit of tax-free compounding.
Not paying taxes on a Health Savings Contribution Account is just the beginning! You can get tax-free compounding as long as you use it for health-related expenses. You don’t pay taxes when you use it. This is one of the best secret weapons I have when it comes to savings accounts. While many people don’t like the fact that it’s limited to healthcare expenses as you age, it usually does. Your biggest expense becomes healthcare.
Another client of mine was enrolled in a high deductible health care plan by her new employer. In this case, the employer was paying 90% of the premiums and contributing the full $3650 to this individual’s health savings account — which is the maximum for an individual. This resulted in savings in monthly premium cost as compared to his former employer. It also provides a method for paying more deductibles if it kicks in.
A health savings account can actually work to your advantage within your employee benefits!
I advised this client to pay out of pocket with new savings and a health savings account to be compounded over time. As mentioned in the previous example. This man lamented the fact that his new employer was not making an equal contribution to his 401(k). I said, “You better have something else. They’re giving you a non-discretionary match or free money that’s 5% of your salary. You don’t have to invest your money just to get company money—which many 401Ks do. (k) happens in plans. If you want to contribute, you can, but you don’t have to because of these two things!” By the way, access to a 401(k) allows him to have say $20,500 in 2022.
This meant that she was increasing her salary and not by a nominal amount, especially if you adjust taxes on the health savings account. I explained that based on her income, that was under the statutory maximum for singles of $125,000, and she could have made a full Roth IRA contribution instead of saving money in her retirement plan. We finally found that with all this newfound knowledge she could accelerate her savings for a down payment on a house.
Married couples need to take a closer look at both their individual and family employee benefits
In another case of a newly wed couple, I was able to see their two benefit plans. This, in some cases, is worth about 80 pages of information. Not only will this be a lot to read for anyone, but it’s even more difficult for people who aren’t used to knowing what to look for and how to parse that information. In this case, I noticed that the husband’s employee benefits for health care were pretty surprising compared to the wife’s, with a higher deductible health care plan and ability to have a health savings account (HSA).
When I saw the reduction in premium between two different plans, their plan looked better. When I looked at the maximum out-of-pocket spending between the two plans for family, his maximum out-of-pocket was $3200 and his was $6250. While the wife’s employer offered too many options, she was actually in “choice surcharge.” And looking at all those options will take a lot of time! Unfortunately for her employer, the many benefits offered required her to visit a portal rather than pass the information into a large PDF document.
In all these cases, when moving to the next employer, each person found himself subject to a change in philosophy by his new employer. Some lost matching contributions, some lost both life and disability insurance. And in one case, while the new employer indicated the possibility of more insurance being available, there were rules that limited the initial coverage and required underwriting if the customer wanted the maximum available. This was not the case with his former employer.
Don’t take your employee benefits lightly!
If you find yourself floating around in “choice overload” or unfamiliar terms, seek help. You may find that you need to look beyond the administrators of your company. With thousands in line annually, you owe it to yourself.