Advice for young professionals on choosing a health insurance plan and more
So you just got your first real job–congrats! Besides getting used to your new schedule and coworkers, you have a number of important decisions to make when it comes to choosing your employee benefits. You’re going to want to balance protecting your financial future with the current reality of what you can afford in payroll deductions, and that’s not always clear cut.
While you hopefully are in good health at this stage of your life, keep this in mind: according to the Social Security Administration Office of the Chief Actuary, the average 20-year-old worker in 2023 has a 25 percent chance of becoming disabled before the normal retirement age, and a 13 percent of dying before that time. That means, you’re never too young to start planning for those worst-case scenarios.
As the dad of two young professionals with 30+ years of experience in the insurance industry, I’ve put together some advice to help you and other recent grads figure out what employee benefits you need.
Six Tips for Choosing Your Employee Benefits
Protect your paycheck
If you have tuition debt like most recent graduates, your paycheck is your most important asset. Protecting it should be your number one priority. If your employer offers short- and long-term disability insurance, you need to seriously consider maxing out these coverages.
Short-term disability covers a portion of your income if you’re unable to work due to a covered illness or injury for less than two years, while long-term disability provides coverage beyond the two-year mark (National Association of Insurance Commissioners).
Consider a high-deductible health plan
Since every disability includes some type of medical care, you need to have health insurance coverage. The question becomes what type. If you’re relatively healthy and your employer offers you the ability to choose a high-deductible health plan (HDHP), you should strongly consider that as an option.
HDHPs offer lower monthly premiums but higher out-of-pocket costs. The IRS defines HDHPs as follows: for 2024 plans, you’ll have to pay at least a $1,600 deductible before your health plan starts to split the cost of care with you (coinsurance); however, you won’t pay more than $8,050 total for your deductible, coinsurance, and any copays over the course of the year.
Contribute to a health care savings account
Your employer may offer some options for helping keep out-of-pocket costs under control, which are worth looking into: Health Spending Accounts (HSAs) and Flexible Spending Accounts (FSAs) both allow you to set aside pre-tax dollars to pay for future health care expenses. There are also Health Reimbursement Arrangements (HRA), which are funded by your employer and reimburse you for qualified medical expenses (sometimes including premiums).
Spend some time doing the math to find out if the lower payroll deductions for your HDHP in combination with your employer’s contributions to one of these accounts will be enough to cover most of your expected medical expenses for the year.
Add voluntary coverage
If your employer doesn’t offer an HSA, HRA, or FSA, or you can’t afford to make contributions to one, consider buying some voluntary coverage if your employer is offering it. These plans provide a cash payment that can help cover your deductible and coinsurance in the event of a major illness or injury. There are a few types, which I mentioned in my last post on ancillary products and the care gap:
- Accident Insurance, if you’re injured in an accident, even if you can still work
- Critical Illness Insurance, if you have a critical health emergency–heart attacks, strokes, or cancer–that isn’t covered by your medical plan.
- Hospital Indemnity Insurance, if you spend any time in the hospital
There’s also Gap Insurance, which you can purchase if you have a HDHP and you’re concerned about paying your out-of-pocket costs.
Evaluate if you need life insurance
Employers usually offer life insurance. Your decision on whether or not to purchase it is really going to depend on two things:
- Do you have liabilities, for example a mortgage, that you would like to be able to have a surviving family member be able to pay off should you die, and/or
- Do you want to be able to protect your insurability at a future point by purchasing some insurance now even though you don’t have any liabilities?
The reality is that if you do have liabilities like a mortgage, the chances of your employer’s life insurance benefit being enough to cover them is small. It might be better for you to look outside of your employer’s life insurance benefit to get the coverage you need.
Think about dental and vision costs
Of course, both of these coverages can be useful, especially if you require a higher level of care. However, taking them at the expense of some of the benefits mentioned above, in particular disability, isn’t a smart idea. It might be better to forgo these initially and look to add them as your income increases.
You may also be better off putting what you’d spend on these premiums into your 401K. You should be making a large enough contribution to maximize your employer’s matching dollars, otherwise you’re turning down free money.
Even though this is an exciting time in your life and career, try to take a step back and give some careful thought to your employee benefits, and how they align with your needs and goals. It’s never too early to take control of your health and plan for your financial future.
But if you’re not working yet, just enjoy your summer!
