We are the focus of the open enrollment season for benefits such as health insurance, life insurance, and disability insurance. If you work for a company that offers these valuable award upgrades, you can get a number of benefits and a short amount of time to choose from, starting with one year.
These decisions may seem trivial, especially when they cost only a few dollars per salary, but the benefits of many companies act as an important financial lifeline in the event of unforeseen challenges. Work. In this two-part blog we look at which advantages offer the maximum benefit and which advantages can be passed with confidence. Part 1 focuses on health insurance, which is the most complex solution in front of you.
This may be one of the most important benefits your employer offers, but how do you know which health insurance plan is right for you? Due to the availability of premiums, it is not easy to choose the option with the lowest premium. To begin evaluating the best option for you, think not only about the premium, but also the amount you can pay for the discount and co-insurance.
Premiums, discounts, co-insurance and pocket cover
The deduction amount is the amount of your expenses that you must pay before you help the health insurance company cover your treatment costs. Everyone on your policy can have their own deductions, or all expenses can be linked to family deductions. Check the planning rules, as this difference alone can have a significant impact on your overall costs.
When you reach your deductible, the insurance will start paying for part of your expenses. This part is determined by the amount of joint insurance. A co-insurance rate of 20% means paying 20% of the cost and the insurance company paying the remaining 80% until the pocket limit is reached. Maximum is another significant figure to consider.
For example, you are the only person in your plan. The premium is $1,500 per year, the deduction is $2,500 per year, the co-insurance rate is 20%, and the maximum out-of-pocket fee is $6,000. If you spend $2,000 on medical expenses, your total cost is $3,500. Her premium is $1,500 and all costs $2,000 because she hasn’t paid the deduction.
For example, let’s say you spend $7,000 on medical expenses. The total price is $4,900. The premium is $1,500, $2,500 to cover the discount, 20% off the remaining $4,500, or even $900.
If the price exceeds $7,000, we will continue to pay 20% of the co-insured amount until we pay the premium plus the $6,000 pocket limit.
Tax-saving health insurance features: FSA and HSA
Health insurance companies often offer the option of using a Flexible Expense Account (FSA) or Health Savings Account (HSA). Donating to one of these accounts will reduce your federal and state tax revenue, but that’s where the similarities end.
Flexible cost accounting is often offered at traditional health insurance companies. You can donate up to $2,850 to the FSA for 2022, and the amount you choose roughly matches the medical expenses you’ll pay for the year. If there are not enough training costs throughout the year to cover the entire OJK, the remaining money will usually be confiscated in early March of the following year. In other words, it’s worthwhile to use or lose unless your employer allows you to move on to the following year.
(Are you interested in FSA Dependent Care? See Part 2!)
A medical savings account is only available if you have a High Deduction Medical Plan (HDHP). The higher the discount, the more you pay before the co-premium is applied. Often less expensive than their FSA-compliant counterparts, HDHPs work well if you’re healthy and have low medical costs year-round. These plans also tend to save on employer premiums and may offer contributions to an HSA (see free medical expenses).
Access to HSAs is a key benefit of HDHP. Unlike the FSA, HSA contributions are either unused or lost. Money can be deposited in your account indefinitely and can even be invested and replenished from time to time. The annual contribution limit is $3,650 for individuals and $7,300 for families with two or more employer contributions less.
Not only are these donations eligible for state and state tax deductions, but HSA distributions are tax-free when used for medical expenses. This is a rare triple tax threat that is beneficial for donations, account deposits, and distributions because even the growth generated by invested HSA dollars is exempt from future taxes.
In most cases, the medical plan you choose will determine whether you can use an FSA or an HSA. In principle, you can’t use any of these unless you decide to finance a dedicated FSA with an HSA and an HDHP. This type of FSA can only be used for limited costs such as dentistry and vision and can be combined with the use of an HSA.
When estimating the total cost of coverage, it is important to consider the potential tax savings from FSA or HSA contributions and the amount of money the employer is willing to pay to the HSA. A 22% tax rate applies and contributing $2,500 to one of these accounts will save you $550. Subtract the tax savings and employer contributions from the above calculation to get a true estimate of all your health care costs for the year.
Of course, access to your desired network of doctors is another important factor when choosing health insurance, but if multiple rates meet these criteria, who should use this framework. You can assess whether the plan is economically optimal. Start by estimating medical expenses for next year, calculate your own insurance and medical expenses, and reduce those costs through tax savings from the FSA or HSA and your employer’s expenses.
We look forward to seeing you again in Part 2 of the Open Enrollment Guide for additional employee benefits.