Stern Advice-How to make smart benefits choices for 2014

Wed Oct 30, 2013 12:13pm EDT

By Linda Stern

NEW YORK Oct 30 (Reuters) - If you have been waiting years for a decent raise, you will probably have to keep waiting - the average salary increase in the United States planned for 2014 will be only 2.9 percent, according to a Towers Watson survey. And rather than being shared equally, that raise will be aimed disproportionately at workplace stars.

This is all the more reason not to leave money on the table when selecting your employee benefits for 2014, something most workers are doing right about now. But the majority of workers - roughly 60 percent - simply let their benefit choices ride from one year to the next, and do not bother re-evaluating whether they should be switching to new plans for healthcare coverage or other benefits, says Karen Frost, a vice president and healthcare expert at Aon Hewitt.

That's not good - especially this year, when many employers have shaken up their benefits plans. The reshuffling comes in the wake of the 2010 Affordable Care Act, which is just now starting to kick in.

And health plans are not the only thing being reshuffled. Companies are also boosting their 401(k) matching contributions. That means it might be time to re-evaluate your retirement plan choices, too.

Here is how to approach open enrollment season for 2014.

- Learn to live with high deductibles. Employers are increasingly embracing "consumer-driven" health plans, which require patients to share healthcare costs via high deductibles, copays and coinsurance (when a portion of every charge is passed on to the consumer.) Within five years, some 44 percent of companies will be offering plans like that as their only choices, according to Aon Hewitt.

"Most people will see a high deductible and be scared, but that actually might be a smart financial decision for you and your family," said Tracy Watts, a healthcare benefits expert at consulting company Mercer.

Workers who choose a high-deductible plan will save on monthly premiums. The plans also come with companion healthcare savings accounts (HSAs) that allow you to accumulate pretax money that can be used to meet those out-of-pocket costs. Workers who can afford to save money in an HSA and pay their healthcare costs separately can use that account to accumulate money for retirement healthcare - and never pay taxes on the money earned in the account. That makes it a better deal than a 401(k) or an individual retirement account, which simply defers taxes instead of eliminating them.

Families that have high healthcare costs every year - lots of kids and chronic conditions, for example - will still probably do better with a higher-premium, lower-deductible plan that limits out-of-pocket costs. It may not save them money over the year, but it will allow them to better predict and budget for their healthcare expenses.

- Split up your family coverage. More companies are cutting back on the subsidies they offer adult dependents, so you can expect to pay more to keep your spouse or adult child in your plan. Compare how much it would cost to keep your family all in one plan, with how much it would cost for everyone to obtain coverage individually, either from their own employer or via the public or private healthcare exchanges.

- Make sure you are capturing the whole 401(k) match. For the first time in 20 years, employers are increasing the amount they will contribute to employee 401(k) plans, according to Aon Hewitt. Roughly one in five large employers will contribute up to 6 percent of salary with a $1 for $1 match - for every dollar you put in, your company puts in $1.

That is free money and an instant 100 percent gain on your investment - you can't not take it. So make sure you are signed up to contribute at least as much as the company will match in 2014. Above that amount, most 401(k)s are still a good deal, but it would be better to max out your HSA first.

- Use a flexible spending account. These allow you to set aside as much as $2,500 in pretax income for healthcare costs, and you can do this even if you have a high-deductible plan and an HSA, notes Frost of Aon Hewitt. In that case, you would use the funds for items like dentistry, eyeglasses and orthodonture; you would not be able to use it for your regular medical expenses. But doubling up an HSA with a flexible spending account really allows you to maximize the tax breaks available.

- Be cautious about add-ons. Many companies are including other insurance plans that you can sign up for yourself: The latest are critical illness and accident policies that promise to pay lump sums or fixed daily amounts if you have a heart attack or cancer or other catastrophic health problem. These policies are cheap, says Frost, and people use them to offset those new higher deductibles. But they may not deliver enough to be worthwhile, so check to see what they cover and how much they cost compared with simply paying deductibles out of your own pocket or buying a lower-deductible plan.

Long-term care insurance is another popular add-on, but here is a key question: Can you keep the policy at an affordable premium when you leave your job? You are far more likely to need long-term care when you are older and retired than when you are working. So if it's a plan that will lapse (or that you will have to let lapse) when you leave your company, it may not be worth keeping.

- Take the time to collect extras. Lurking somewhere in your company's benefits website are some extra perks: Cash back for joining a gym, matching charitable contributions and more. Take the time to fill out the forms and grab that cash. A few hundred here and a few hundred there, and pretty soon, it's almost like a real raise.

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