Capitalizing on Employee Benefit Programs
Elizabeth Coit - Executive Director, Networks Financial Institute at Indiana State University
Categories: Family, Financial, Financial Planning, Personal Finance
Traditionally, fourth quarter is the time of year when companies budget for the next fiscal year. Insurance companies generally offer a period of “open enrollment” when corporations may change employee healthcare plans and employees may change their benefit coverage levels. This month’s feature focuses on some of the more common questions employees have about employer-sponsored benefit programs.
Traditionally, fourth quarter is the time of year when companies budget for the next fiscal year. Insurance companies generally offer a period of “open enrollment” when corporations may change employee healthcare plans and employees may change their benefit coverage levels. This month’s feature focuses on some of the more common questions employees have about employer-sponsored benefit programs.
Besides life and health, what kinds of benefits are available?
When thinking of employee benefits we generally think of health, life, disability insurance and retirement savings programs; perhaps because these are the most common benefits. According to the, “National Compensation Survey: Employee Benefits in the United States, March 2006,” published by the Bureau of Labor Statistics of the U.S. Department of Labor, 71 percent of workers in private industry had access to employer-sponsored medical plans and 61 percent of workers had access to retirement benefits. Given the uncertain future of Social Security, new medical and pharmaceutical advances along with longer life spans, access to medical insurance and an adequately funded retirement program are critical as the first Baby Boomers reach retirement age in 2011.
However, benefits extend beyond healthcare insurance and retirement plans. In the war for talent, many companies are broadening their benefits programs to include less traditional benefits. These benefits have differing levels of value depending on staff age, sex, and other factors. For example, direct deposit allows staff to have their paychecks electronically deposited into their bank or credit union account, saving time. Flexible Spending Accounts (FSAs) allow employees to set aside a portion of their earnings to cover out-of-pocket health care and dependent day care expenses. Funds are credited to the flexible spending account through payroll deduction on a pre-tax basis, reducing an employee’s taxable income. Some companies provide education allowances that may range from covering the cost of a continuing education course to financing an employee’s MBA. Wellness programs allow employees to take advantage of special pricing at fitness centers, and may even help businesses reduce their health insurance premiums. Other non-traditional benefits include flexible hours, interest-free computer loans that allow employees to pay for a computer via payroll deduction and paid community service opportunities.
How can I compare apples to apples when selecting a health care plan?
Many employer-sponsored health insurance programs allow an employee to choose from several options. Plans frequently differ in terms of the annual deductible, co-pay for office visits and pharmaceuticals, the scope of services covered, as well as the annual maximum benefit. The plan that works best for your family will take into account the unique health status of family members. Some questions to consider include:
Are your health costs limited to routine office visits or do family members have conditions requiring ongoing medical attention?
Do you have a unique health or cosmetic concern requiring specialized services such as infertility or orthodontia?
If you have an infant, does the plan cover well baby care?
How many prescriptions do you typically have filled each year? What is the co-pay for prescription and generic drugs under each plan?
Are preventative services (i.e. mammograms, vaccinations) covered?
While the plan details may look intimidating, it is well worth investing the time to read the fine print and then analyze possible annual out-of-pocket costs associated with each plan. A young, single employee may opt for a plan with a high deductible and low co-pay since he or she is not apt to have frequent office visits. Likewise, an employee being treated for an ongoing condition may choose a plan with a lower annual deductible since he or she is more likely to reach the deductible threshold.
What independent options exist if an employer does not offer medical insurance?
If your employer does not offer medical insurance, don’t be tempted to “risk it.” While independent insurance is generally more expensive than group insurance, there are several coverage options available; all of them are virtually guaranteed to be less expensive than a one-week hospital stay. If you recently left an employer that provided medical coverage, you are eligible to take advantage of a federal law known as COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985). COBRA guarantees coverage at the employer’s group rate for up to 18 months, at the employee’s expense. Because employers generally pay a significant portion of employee health care expenses, be prepared for the cost of coverage through COBRA to be significantly higher than what you paid when you were employed by the business offering the coverage.
A relatively new healthcare funding option is a Health Savings Account (HSA). HSAs enable you to pay for current health care expenses and save for future qualified medical and retiree health expenses on a tax-free basis. HSAs require a high deductible health plan (HDHP); an inexpensive health insurance plan that generally doesn’t pay for the first several thousand dollars of health care expenses (i.e., your “deductible”) but will generally cover you after that . An HSA may be opened at a bank or other financial institution. Decisions on how to spend the money in the HSA are made by you without relying on a third party or a health insurer. You also will decide what types of investments to make with the money in the account in order to make it grow.
Group insurance rates are not limited to large corporations. Sole practitioners may be able to qualify for group insurance if they employ at least one individual for at least 30 hours a week. Many associations also offer health insurance coverage. These include professional associations as well as community-based groups such as the Chamber of Commerce.
Finally, major insurance companies do offer individual and family policies. Take time to research the various programs online and over the telephone. Ask friends and family about their experience if they have participated with a particular provider.
If I am covered by my spouse’s health plan, do I need to take advantage of the plan offered through my employer?
You are not obligated to accept insurance coverage through your employer. However, be sure to compare the cost your spouse is paying to cover you with his/her insurance plan to the cost you would pay to be covered through your employer. Also, be sure to compare the apples-to-apples benefits of each plan including the co-pay on drugs and office visits, annual deductible and scope of coverage. Again, this may require reading a lot of fine print, but doing so will help ensure that you are taking advantage of the most cost-effective plan based on your healthcare needs. You may even discover that your coverage is superior to that provided by your spouse’s employer.
What percentage of benefits should I expect as a percentage of my salary?
In June 2006, average costs to employers in private industry for retirement and savings benefits were 91 cents per hour according to the Bureau of Labor Statistics National Compensation Survey-Compensation Trends program. The cost of all employee benefits – including paid leave, supplemental pay, insurance, legally required benefits, as well as retirement and savings plans – averaged $7.39 per hour worked in private industry in June 2006. Wages and salaries averaged $17.77 per hour. Using this data, one can estimate that benefits equate to approximately 40 percent of compensation.
Should I participate in my company’s retirement plan and if so, how can I maximize the benefits?
Participating in an employer-sponsored retirement plan is simply one of the best investments you can make for several reasons. First, very few companies offer pension plans these days and the Social Security Administration has noted that by 2041, “there will be enough money to pay only about $0.74 for each dollar of scheduled benefits.” The Center for Retirement Research at Boston College has cited “49% of the members of Generation X (workers aged 26 to 41) are “at risk” of reaching retirement without having enough money to actually retire.” Employer retirement 401 (k) plans also offer the benefit of tax deferred growth; allowing your nest egg to grow more quickly because funds are not taxed until they are withdrawn at retirement.
Your employer’s retirement savings program becomes even more valuable when it offers a “matching” program. With many plans, a 6% contribution earns a 3% match – a 50% return on your investment even if the investment does not increase in value. Begin a matching program early and then increase your contribution every year as you receive pay increases.
What if my company doesn’t offer a retirement plan?
If your employer does not offer a 401 (k) plan, you may open an individual retirement account (IRA). While an IRA does not offer the benefit of a corporate match, you will still enjoy the benefit of tax-deferred earning. IRAs may be opened at your bank, credit union or other financial institution.
Taking advantage of employer-sponsored benefits is another way you can make your money work harder for you. Participating in employer-sponsored benefit plans does not require a degree in human resources or finance; just a willingness to educate yourself about the options and make the decisions that will most benefit you and your family.
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