In 2013 three in five bankruptcies will be due to medical bills according to data from the Center For Disease Control and the US Census Bureau. That’s a sad state of affairs for a country as wealthy as ours.
As a contractor, I no longer have the benefit of being covered by a company’s medical benefits. As a result, I’m super focused on getting the best health care coverage possible to avoid disaster scenarios. If you are a full-time employee, be thankful for your health care benefits. Although you might not experience the benefits month-to-month, you’ll certainly appreciate them if something bad happens.
If you don’t re-enroll or make changes, your current options *might* get carried forward to the next year except for some discretionary flex spending decisions, which reset to zero. But let’s not leave our health insurance to chance. Here’s an insurance and benefits checklist for you to go through to hopefully better navigate all the options.
THE INSURANCE AND BENEFITS CHECK LIST
* Medical: Go with either a PPO (Preferred Provider Organization) or a HMO (Health Maintenance Organization) provider. The main difference between the two is that the PPO does not require you to choose a Primary Care Physician (PCP) to coordinate and refer other specialists in your network. As a PPO client, you do not need a referral to see other doctors in your preferred network, which generally provides you more choices than a HMO network. In other words, a PPO is more flexible and provides a better selection of doctors and therefore costs more.
Another interesting thing I see is the difference between co-pay and co-insurance. Co-pay is where you always have a fixed payment every time you see the doctor, no matter how much your medical services cost. Co-insurance is when you share a certain percentage of the medical cost. In general, co-pay results in more expensive monthly premiums than co-insurance. If you have a $1,000 knee operation for example, your co-pay may be just $50 bucks, but with co-insurance, you may have to pay 20% of the entire cost, or $200.
If you feel you may have higher medical expenses in the coming year, the easiest rule is to go with higher monthly premium plans because that generally means higher coverage and less out of pocket expense. I prefer go with a PPO and co-pay rather than an HMO with co-insurance which costs less if you don’t get injured or sick.
* Health Care Flexible Spending Account: If you anticipate something major, like knee surgery or corrective vision surgery, you can contribute up to $2,550 to an employer-sponsored healthcare flexible spending account. All contribution is pre-tax, which saves you money based on your highest marginal tax rate amount. Each person’s administrative threshold is different, so weigh the costs of spending time filling forms, faxing, and waiting vs. the tax money saved. Don’t over-budget the annual amount either because what you don’t spend, you lose.
* Dental: Pretty straightforward and a necessity for those who value straight teeth and healthy gums. There are many different plans with different benefits and deductibles. Mine provides two cleanings a year, and 70% coverage on dental work with a $100 deductible a year for eight bucks a month. Nothing is ever really “free,” so watch those deductible costs.
* Vision: Provides discounts for eye examination, eye-wear, and contacts. Those with perfect vision should still opt-in as it generally costs under $10 a month. I like to get my eyes checked out once a year since I’m on the computer so much. I don’t want a detached retina or glaucoma to sneak up on me. No eye-sight, means no driving, no work, no consulting, no writing, no blog.
* Basic Life: A token amount of term life insurance that is generally free. My old firm used to provides $50,000.
* Supplemental Life: More term life insurance that is usually a multiple of your base salary (1X – 10X is common). Depending on your age and health, a $1,000,000 supplemental life insurance policy could cost less than $50/month. The amount of supplemental life you need is determined by the amount your dependent needs to pay both your bills without having to worry. The amount is subjective, but I would shoot for at least five years of total expenses i.e. add up all expenses such as rent, food, mortgage, travel for the year, and multiply it by five. This is why you need to track your finances with a software such as ours.
* Personal Accident Insurance: Generally also provided for free by your company to cover accidents that are non-travel related or if you die on the job. Back on Wall Street you’d hear of first year analysts dying on the job every year because they were working 100+ hours a week. Work hours in tech seem much more civilized now. I’ve seen ranges of $100,000 to $1,000,000, so best to find out what yours is.
* Excess Liability Insurance: Also called an umbrella policy which is very important if you have lots of assets which would be exposed if you get sued. Simply calculate your net worth and get a umbrella policy that’s 50% over your net worth amount to be safe. Cost is usually around $125 per $1,000,000 of coverage per year.
* Short-Term Disability: If you are a construction worker and injure your back and can’t work beyond the amount of your sick leave, short term disability kicks in. Short-term disability provides you with generally a slight majority of your wage (60% is common) for usually six months. Price is generally free or minimal – about $5 to $10 per month. Maternity leave is actually considered short-term disability in many cases.
* Long-Term Disability: Long-term disability kicks in after you exhaust short term disability. It’s there to protect you financially from catastrophic injury or illness. LTD also provides 60% of monthly eligible earnings after short-term disability runs out. Generally, you want a policy that lasts until you are 65. Costs generally run from $20-$80/month after-tax depending on how much you make. 60% of $50,000 a year costs much less than 60% of a $500,000 per year salary for example.
* IRA: A pre-tax savings plan that allows for $5,500 a year in pre-tax contribution for 2015. Contribution phaseout begins at $61,000 for singles and $98,000 for those filing jointly. I’m not sure why the government doesn’t allow everybody to save, but these are the rules according to the IRS.
* 401k: The pre-tax contribution limit goes up to $18,000 a year for 2015 from $17,500 in 2014. Do your best to max out your 401k and keep it that way for as long as possible. Your future self will thank you for your discipline. Remember, if it doesn’t hurt to save a little every month, you aren’t saving enough. Please see the recommended 401k amount by age post.
* Tuition Reimbursement: More education generally makes you more valuable. There’s a good chance your employer pays for continuing education and you don’t even know it. I got 80% of my Cal MBA paid for by my previous employer upon condition that I get at least a 3.0 GPA average, maintain a high quality level of work, and stay for at least two years after I graduate. Check for extending learning, CFA, CFP, CPA, and any master’s education coverage.
APPRECIATE YOUR BENEFITS
Completing your open enrollment should give you further appreciation of your firm as well as remind you of how fortunate you are to have a job. Literally millions of people don’t have insurance not out of choice, which means any unfortunate mishap could send them to poverty. Spend some time reading your company handbook if you got one and sit in on as many benefits sessions as possible.
It’s easy to take your benefits for granted, but rest assured there is great value to all your company benefits. It looks like I’ll have to pay $400-$500 a month for a silver-level type plan for a single individual in 2015, for example. If you have any benefits questions, please don’t be shy to ask your employer.
Photo credit: Jeffrey Johnson, Flickr Creative Commons