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A Closer Look At Benefits

For most folks in the workforce, it's open enrollment time.

The Early Show's financial advisor Ray Martin says now is the opportune time to choose insurance coverage and other benefits offered by an employer for the upcoming year.

With health care costs rising, it's more important than ever to make the most of your benefits package, Martin explains. He will stop by The Early Show on Wednesday with tips to choose the best options.

Recent years have seen big increases in the cost of health care and thus increases in the cost of health insurance. As a result, it's been impossible for employers to offer their workers the same health coverage at the same prices. Martin says employees have had to help shoulder the burden of rising costs by paying more for their insurance. Martin says as Americans begin thinking about next year's benefits they can expect more of the same.

It's predicted to cost employers 12 percent more to insure their employees in 2004. So, Americans can look forward to higher deductibles, higher co-pays and higher premiums. Unfortunately, Martin says, those with families may suffer an added burden because it's estimated that employees' families can account for up to three-quarters of a company's healthcare costs.

Concerned about rising costs, many companies are either cutting benefits for spouses and children or trying to get families off their plans altogether.

Martin says it's more important than ever to make smart decisions when choosing your benefits package this fall. He shares the following tips:

Don't Default
This is not the year to be lazy during open enrollment. Martin advises not to just sign up for what you had last year, and do not miss your enrollment deadline. If you miss the sign-up window, your company will typically default your 2004 coverage to your existing benefit elections or coverage may default to the cheapest plan available. You need to carefully examine current options being offered by your company, Martin says, realizing that there may be some significant changes in the benefits that are being offered this year.

Sign Up For Flexible Spending Accounts
Flexible spending accounts (FSA) may be the most valuable benefit you are not using, according to Martin. A majority of companies offer health and dependent care accounts, and some offer commuter accounts. In an FSA, money is set aside through payroll deductions. You pay no income or social security taxes on this money.

When you incur medical expenses not covered by insurance (or you incur daycare costs or commuter costs), you are reimbursed from your account. This can result in huge tax savings. Only 18 percent, however, of employees have a flex spending account.

Martin explains money set aside and not spent in these accounts will result in you losing it. Reports show many people stay away from the FSAs because they are afraid of losing their money. If you are one of these people, Martin says to think about this:

  1. Benefit providers report that only 10 percent of account-holders forfeit money at year's end.
  2. The amount of money lost is very small, and tax savings more than makes up for the small amount that's lost.
  3. New rules make the health spending accounts easier to utilize.

Martin says your entire medicine cabinet can now be paid for with pre-tax money through an FSA. Rules passed in September say money in these accounts can be used to pay for over-the counter drugs such as aspirin, antacids, cold relief, cough syrup, even band-aids and neosporin.

These items aren't cheap, Martin says, and the costs really add up over a year — particularly if you have children.

FSAs continue to cover out-of-pocket costs such as doctor office co-pays, contact lenses and birth control pills. Martin says the expanded rules mean even more tax savings and even more opportunities to use, not lose, FSA money.

The other development that's making these accounts easier to use are debit cards. In the past, you had to fill out forms and mail in receipts in order to be reimbursed for costs from your account. Now, companies are beginning to offer account-specific debit cards. Simply swipe the card at the doctor's office or drug store to pay for qualified items. With the new system there are no receipts, no paperwork and no excuse not to use an account.

Flexible spending accounts can also be used to pay for up to $5,000 of childcare per year. Additionally, some companies offer commuter accounts. You can pay for $100 a month in public transportation costs and $190 per month for parking in pre-tax dollars.

Avoid Double Coverage Costs
As noted earlier, some companies are trying to ease employees away from family health coverage.

Martin says the new trend for employers is to now charge employees extra for including their working spouses under their medical plans. He says if you are in a situation like this, consider dropping your spouse from your insurance. There's no reason to pay extra — essentially double — costs like this if you have another option.

Consider Next Year's Needs Now
If you're planning to have a baby, or know that you need eye surgery or dental work in the upcoming year, look for a benefit plan that matches your needs best. Martin suggests calling your planned provider, make sure they accept your insurance and get an estimated cost.

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