or many of you, it's that time again at work—annual benefits enrollment. The elections you make or allow to stand for another year can cost you hundreds of dollars in contributions. Whether you fine-tune your benefits coverage every year or choose to leave well enough alone, these questions and answers might help you make sense of some of your options and feel more comfortable about your choices and the money you pay for them.

Group life insurance
isn't permanent;
it ends when
your employment ends.
My spouse and I both have flexible benefit plans at work. How do we coordinate our elections?
Start with the big-ticket items: medical and dental. If one or both of you can opt out of your employer's coverage, think about enrolling everyone in one plan. Few plans pay duplicate benefits to people with double coverage. So enrolling in a second plan probably will cost more than it pays you.

Compare the options available to find the plan that provides the coverage you want—particularly for any specialized care you need—at the best cost. If you're considering a managed-care plan, make sure the doctors you want to use belong to the network. If they don't, it still may be less expensive to see them than to pay for coverage under a second plan.

Next, look at reimbursement accounts. If you have enough eligible health-care costs, each of you can put the maximum in your health-care account. It doesn't matter whose health-care plan you're enrolled in.

Internal Revenue Service (IRS) rules will affect your dependent-care account deposits, however. Typically, you're limited to $2,500 each if you file separate returns or $5,000 total if you file jointly.

If your plans include dependent life and accident insurance, each of you may want to elect enough coverage to replace the other's annual income.

What is a managed health-care plan?
In a managed health-care plan, insurers use administrative procedures and benefit levels to manage your access to health care. The goal—to control the amount you, they, and your employer spend on health care.

Managed-care plans are set up around networks of doctors, hospitals, and other providers. These networks hold costs down because their providers charge you lower fees and make more of the decisions about your care. Also, the network can collect information on medical outcomes from its providers to identify effective treatments and efficient practices.

There are three kinds of managed-care plans.
  • The health maintenance organization (HMO) is the most highly managed plan. You usually have a primary care doctor, sometimes called a gatekeeper. He or she provides and authorizes the care you get through the HMO. You pay a set fee for all services as long as you get authorized care from an HMO provider. Otherwise, you pay the bill.

  • The point-of-service (POS) plan combines elements of HMOs and traditional medical plans. If you use the network and your primary care doctor, most of your costs are covered except for co-payments. If you get treatment outside the network or without your primary doctor's OK, you have to pay a deductible and as much as 40% of the bill.

  • The preferred provider organization (PPO) uses incentives instead of controls to manage costs. Preferred providers charge you less than non-network providers. To further sweeten the deal, you may get higher benefits for in-network care. The PPO has no gatekeepers, so you don't need a referral to see a specialist.
Remember, a managed-care plan can cut your out-of-pocket costs only if you use network providers. So before you enroll, check the network directory to see which doctors and other providers belong.

     Few medical plans
     pay duplicate benefits
     to people with
     double coverage.

     reimbursement account
     deposits are
     totally tax-free.

The elections you make
can cost—or save—
hundreds of dollars.
Is the most expensive medical option the best option?
It depends on how much coverage you think you need and how you want to pay your health-care costs.

The more expensive options typically have higher benefits, so you pay a smaller part of your medical bills during the year. If you can afford the higher payroll deduction and expect to have a lot of medical bills, the more expensive option might make sense for you. Also, if you pay pretax premiums, tax savings will offset some of that cost.

Maybe you don't have a lot of medical bills or are willing to pay more out of pocket for the bills you do have. In that case, consider the lower-cost options and put some money in a reimbursement account to cover your expenses.

How much life insurance do I need?
One guideline says you should insure yourself for at least five times your annual pay. But it really depends on your situation—how old you are, whether you're on your own, or whether someone depends on your income. If you're young, without long-term financial obligations, you may not need life insurance. Or, if you have family or friends you want to provide for after your death, five times pay may not be enough. For example, do you want to "insure" your survivors' ability to pay the mortgage on your house, your children's school tuition, or a parent's long-term care?

Your employer's group term insurance isn't permanent; it ends when your employment ends. So it might be wise to buy a personal policy to cover your survivors' major financial needs. Then get enough group coverage to pay their routine living costs for a year.

Are reimbursement accounts worth the effort of planning and the risk of losing my money?
Absolutely! Why give the IRS more money than you have to? Your reimbursement account deposits are totally tax-free. And the money you save on taxes stays in your paycheck, so you get the tax break every pay period.

Planning your deposit doesn't have to be hard. Use last year's bills as a guide, and adjust health-care costs based on your plan coverage. Some easily predictable costs include:
  • Medical and dental plan deductibles—If you've met them before, odds are you'll meet them again.

  • Eyeglasses and braces—Even if you have vision and orthodontia coverage, your out-of-pocket costs probably will exceed plan limits. And if you don't have these benefits, you'll have some sizable bills to run through your health-care account.

  • Prescriptions—If you make regular trips to the pharmacy, your prescription costs can add up, especially if you use brand-name drugs.

  • Dependent-care expenses—Remember that preschool and day camp fees are eligible in addition to day-care and baby-sitter bills.

Can I use the dependent-care reimbursement account and the federal dependent-care tax credit?
Probably not. The amount you put in a reimbursement account reduces the amount of tax credit you can take. Also, you can't claim the same expense twice. If your family's gross income exceeds $28,000, you'll probably save more by using a reimbursement account.

©1999 Credit Union National Association Inc.