Financial Answer Center
- The New Health Care Law and its Effects
- Why You Can't Be without It
- Employer Plans
- Coordinating Employee Benefits with Your Spouse
- Traditional Group (Indemnity) Plans
- Preferred Provider Organizations (PPOs) / Point-of-Service (POS) Plans
- Health Maintenance Organizations (HMOs)
- Consumer-Driven Health Care (CDHC) Plans
- Paying for Medical Coverage
- Making the Right Choice
- Terminating Employment and COBRA Coverage
- Dental Plans
- Vision and Hearing Plans
- Health Care Flexible Spending Accounts
- Health Savings Accounts
Many employer-sponsored medical plans are offered as part of an employer's flexible benefits program. This type of plan offers you a choice of benefits and coverage options. Qualified benefits include group-term life insurance, accident and health insurance, group legal services, dependant care assistance, and cash-or-deferred arrangements [commonly known as 401(k) plans].
If your medical plan is part of a flexible benefits program, your medical premiums are deducted on a pre-tax basis. This means your premiums will be deducted before taxes are taken out of your paycheck. The end result is that you'll take home more money.
Let's look at the following example:
|
Pre-tax |
After-tax |
|
|
Bi-weekly paycheck |
$1,000 |
$1,000 |
|
Taxes (25% bracket) |
$0 |
$250 |
|
Medical Premium |
$50 |
$50 |
|
Taxes (25% bracket) |
$238 |
$0 |
|
Net Take-Home Pay |
$712 |
$700 |
As you can see, there is $12 more per paycheck for the person who pays with pre-tax dollars.
Health care reimbursement accounts can also help you reduce your costs for non-covered medical expenses that you're likely to incur from year to year.
