October 5, 2007
Like death and taxes, rising health care costs are unavoidable. In fact, you've probably seen your medical insurance premiums increase several times in the past few years. A little careful planning can help you ease your bottom line by choosing coverage that best matches your needs – not to mention save hundreds of dollars on taxes.
Keep these things in mind when choosing a medical plan during your employer's open enrollment period for choosing benefits coverage for next year:
If you've recently had (or are about to have) a family status change, your coverage needs may be different. For example, if you're having a baby, compare maternity and pediatric benefits between plans. Other status changes that may impact your selection include marriage, divorce, spouse's death or dependents passing the eligibility age.
If family coverage is available through your spouse's insurance, carefully compare your plan's premiums and benefit levels with those in your employer's plans. You might save a bundle.
Ask current doctors if they plan to stay in your plan's provider network next year. Out-of-network charges are often much higher. Also, before any hospitalization, make sure the hospital is in the network.
Many medical plans now charge higher copayments for brand-name drugs than for generics, and some even disallow certain medications if cheaper alternatives exist. Ask if your medications are in the plan's drug formulary.
About those tax savings: See if your company provides health care and dependent care flexible spending accounts (FSAs), also known as reimbursement accounts. These let you pay for eligible out-of-pocket medical and child care expenses you would have paid for anyway on a pre-tax basis – that is, before federal, state and Social Security taxes have been deducted from your paycheck.
You can use a health care FSA to pay for any IRS-allowed medical expenses not covered by your medical, dental or vision coverage, such as deductibles, co-payments, dental work over plan limits, contact lenses and glasses, over-the-counter medicines, acupuncture, chiropractic care, smoking cessation programs and many more. Check IRS Publication 502, Medical and Dental Expenses at www.irs.gov, for allowable expenses.
Dependent care FSAs lets you use pre-tax dollars to pay for eligible expenses related to care for your child, disabled spouse, elderly parent, or other dependent incapable of self-care, so you (and your spouse) can work.
To learn more about how FSAs and other employer-provided benefits work, go to Practical Money Skills for Life, a free personal financial management site sponsored by Visa Inc. (www.practicalmoneyskills.com/benefits). If your company doesn't offer FSAs, consult a financial advisor about other ways to save taxes on health and dependent care-related expenses in your particular situation.
Other important benefit considerations. The same family status changes that might affect your medical benefit choices might also prompt coverage changes to other benefits, such as life insurance, accidental death and dismemberment insurance and long-term disability. For example, if you marry or have children, you may want to increase coverage in these areas since others now depend on your income.
Also remember that whenever you gain or lose dependents, you should notify your benefits department to change your beneficiary designation forms – that goes for any benefit or investment plans you carry on your own as well.
Don't just automatically check "same as last year" on your enrollment form. You could be missing out on ways to save on health care costs – and lower your taxes.
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