Avoid These Major Employee Benefits Mistakes
You could be losing thousands of dollars
Rebecca Mazin, Recruit Right
At most companies, autumn is open-enrollment season—the annual opportunity for employees to select from options in their benefits plans for the coming year. Unfortunately, many employees make mistakes in their benefits decisions that result in hundreds or even thousands of dollars in extra costs or lost benefits.
HEALTH INSURANCE
It is always surprising how many employees simply select the health plan that is listed first on the benefits form, erroneously assuming that this plan must be the recommended option. They often wind up with coverage that is less than ideal for their needs, then spend the next year complaining about the inconvenience and/or expense of the medical system. Other costly moves…
Mistake: Automatically sticking with the same insurance plan that you always have used. Even if a particular plan was the best choice for you years ago, it might not be the best option now. The plan’s benefits or costs might have changed…there might be new and more attractive alternatives…or your life situation might be different.
At the very least, reevaluate your health insurance needs and options if you have married, divorced, been widowed, had a child or if a child has left home since you first selected your current insurance plan.
Example: Your 24-year-old daughter is still in college and would like to remain on your health insurance. Some plans allow dependents to remain covered up to age 25 if they are still in school, while others cut off dependents at age 23 or earlier. The best plan for you this year might be the one that allows dependents to remain covered the longest.
Mistake: Rejecting a less costly “in-network” plan without checking whether the network includes doctors you would find acceptable. Many employees avoid these plans despite their potential savings because most people prefer to keep their options open for selecting doctors, including specialists. Some employees don’t even check to see if their doctors are in the network, or they check with the insurance provider (whose lists are sometimes incomplete) but not with their own doctors.
If your current doctors are not in the plan’s network, take some time during the coming year to visit the offices of a few network doctors. Perhaps you can find one whom you like by next year’s open-enrollment period. Ask your primary care doctor whether the network includes top-notch specialists in a variety of fields.
Mistake: Failing to compare coverage for various forms of therapy and alternative health-care treatments if you use them. Health insurance plans vary greatly in terms of the coverage they provide for visits to mental health professionals, chiropractors, holistic medical practitioners, physical therapists, acupuncturists and nutritionists. Read plan literature, or contact insurance plan sponsors for details.
Mistake: Neglecting to call the providers for specific information that relates to your personal medical needs. If you require ongoing and potentially expensive medical treatments—for example, for arthritis or diabetes—it is not enough to compare health insurance plans based on the size of required contributions and co-payments. Call the 800 numbers listed for each health insurance plan offered…and ask how much you would pay out of pocket for the specific medications and medical services that you require.
ADDITIONAL BENEFITS
In addition to health insurance, your annual open-enrollment choices might include dental insurance, flexible spending accounts and, perhaps, life insurance. Common mistakes…
Mistake: Ignoring coverage maximums on dental plans. Unlike health insurance plans, many dental insurance plans have low annual benefit ceilings—often just $1,500 to $2,500. It is easy to exceed those maximums if you need a crown, root canal or any other form of oral surgery. If your dentist says pricey dental work could be in your future, consider a dental plan that features a higher coverage limit (if available), even if it requires higher paycheck contributions or co-payments.
Important: Pay special attention to the orthodontic coverage included in dental plans if someone in your family is likely to require braces. Many plans set very low caps on payments for braces and/or impose age limits restricting whose braces will be covered.
Mistake: Skipping the medical Flexible Spending Account (FSA). Medical FSAs deduct money from paychecks, then allow employees to spend these pretax dollars on their out-of-pocket health-care bills. Employers set contribution limits for these plans. Covered bills include everything from contact lens solution to co-payments for doctor visits. Depending on your tax bracket and state income tax rate, an FSA could save you up to 35% on health-care expenses. Unfortunately, the perceived complexity and risks of medical FSAs put them among the most underutilized of employee benefits.
Most medical FSAs are nowhere near as confusing or risky as employees fear. Many FSAs now provide “debit cards” that are used to purchase health-care products, eliminating much of the paperwork traditionally required to get money out of medical FSAs. The “use it or lose it” rule that scares off many potential FSA participants also has been loosened. In the past, any money left in the FSA at year-end was forfeited, but many plans now give participants a two-and-a-half-month grace period to spend any remaining funds.
Mistake: Expecting to use a dependent-care FSA to pay babysitters who receive their wages under the table. Dependent-care FSAs let participants pay child-care and elder-care providers with pretax dollars up to the IRS annual contribution limit of $5,000. This is a wonderful opportunity for tax savings—but it could cost you a bundle in lost FSA contributions if you do not understand the limitations. If you compensate your nanny under the table without paying payroll taxes, you will not be able to use your FSA. The rules can be complex, so speak with a plan administrator before signing up.
Mistake: Not updating your life insurance benefits to keep pace with your life. Employee benefits packages often include attractively priced life insurance. Many employers even provide basic life insurance at no cost to the employee. The trouble is that many employees who sign up for life insurance benefits never bother to adjust their coverage. By doing nothing, they allow themselves to be automatically reenrolled for the same amount of life insurance each year.
Employees might not realize that the cost of this insurance is likely to climb as they age…and that their need for life insurance is likely to decline over time, as their children reach adulthood and mortgages are paid down.
Also, employees often forget to update beneficiaries. I see employees who have been married for years and still list Mom as the beneficiary.
Bottom Line/Personal interviewed Rebecca Mazin, cofounder and partner of Recruit Right, a human resources consulting firm, Larchmont, New York.
She has held management positions at Hyatt Hotels, Owens Corning and the National Labor Relations Board. She is coauthor of The HR Answer (Amacom).
(Article originally published October 15, 2007)
Reprinted with the permission of:
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