Avoid Common Pitfalls with Your Employee Benefits: Pitfall No. One – Insurance
This is the first in a weekly series of four articles by financial expert Mackenzie Martin. The first article focuses on pitfalls in employee insurance benefits. Articles 2 -4 will focus on pitfalls in retirement benefits, pitfalls in other types of employee benefits, and pitfalls in paystubs.
The intricate, complex world of veterinary benefits and compensation is full of landmines and pitfalls. All employers are unique, and each employee situation is highly individual, creating a lot of space for mistakes and misunderstandings.
More commonly, employees simply miss out on opportunities to maximize their savings or take advantage of opportunities and coverages not offered or understood. It is imperative to be aware of the differences in expectations between corporate and private practices. Understand these differences, especially if you are job hunting.
As your life changes (getting married, having kids, buying a house), carefully evaluate how you’ve arranged your finances. What insurance do you get through work? What do you need to purchase individually? Both your professional and personal lives will continue to evolve, and remembering to evaluate your coverages and financial arrangements will pave the way to a future of security.
Always request the summary plan description (SPD) for all benefits. The SPD contains the fine legal print. You must know what’s in that document, especially if you file a claim! And if you don’t understand it, that’s where a financial professional can help.
Here is the most common pitfall we see veterinarians encounter with regard to benefits:
Pitfall # 1: Auto vs. Voluntary Enrollment
Life and disability insurance options are either automatically enrolled via the employer, or the employee must proactively “opt in” to a voluntary benefit. As a new hire, understanding what happens automatically and what you have to elect is critical. If you miss your election period—usually the first 30-60 days of employment—you are generally unable to make changes until the following year. And, if you don’t enroll in voluntary disability or life coverage, you may have to prove your health status in the future to secure coverage. Be especially aware of this if you have pre-existing health conditions.
Pitfall #2: Defining Compensation for Disability Insurance (DI)
Does your disability cover base pay only? Base plus production and bonus? In the corporate hospital setting, we see both of these definitions: “Compensation includes base wage only” and “Compensation includes total paid wages, averaged over the past 12 months.” These are dramatically different compensation models. Most employer-sponsored disability insurance covers 50-60% of your income. If you were to receive base plus production (ProSal model), and your base is $60,000, but you actually make $120,000, you’re only covered for 60% of the $60,000, or $36,000. Most professionals think they have a lot more coverage than they actually do, as the stated coverage limit of “60%” is misleading.
Example: As I have seen in a large corporate practice’s benefits guide: After you have been disabled for 180 days, long-term disability* coverage pays 50% of your salary, up to a maximum monthly benefit of $3,000. This appears to be a typo because in small print below it states monthly maximum of $15,000. This directly contradictory language exemplifies the rampant confusion, for both employees and employers, surrounding disability insurance.
Pitfall #3: Are Your Disability Benefits Taxable?
If you go on claim for a disability, and your employer paid the premium, you will owe taxes on that benefit. This can cause an unhappy surprise at tax time. If you pay for your own premium, often you can elect to pay pre-tax or after-tax. With disability, opt to pay the small premium after-tax, so you can get the larger benefit tax-free. If you pay the premium pre-tax and go on claim, you will be taxed on the larger benefit amount.
Pitfall #4: Pregnancy, Maternity Leave and Short vs. Long Term Disability
Many plans have a one year pre-existing condition clause, so if you enroll in January and get pregnant in July, the pregnancy will most likely be excluded as a pre-existing condition. Also, waiting periods are important for using short term vs. long term disability for pregnancy. Many short term plans have a 7-14 day waiting period—which works well for pregnancy—whereas long term disability plans typically have a 90-180 day waiting period. Most pregnancy-related disabilities are over before this waiting period ends, due to delivery.
Pitfall #5: Portability of Life & Disability Coverages upon Termination or Resignation
If you have ongoing or expensive health issues, you need to know if your coverage includes a portability clause that will allow you to retain coverage if you leave your current employer. This is especially important if you leave a corporate environment with strong benefits and go to a private practice where it is often assumed that you carry your own disability and life insurance.
Pitfall #6: Spousal Health Issues or Insurability and Individual Insurance Coverage
Be sure to add a spouse with health concerns onto your group benefits via the spousal coverage option. Often this can be done without medical underwriting.
Pitfall #7: Does Your Disability Insurance Plan Have a “Buy Up” Option? Should You Use It? When?
Many employer-paid plans cover 60% of your income, but may also allow an additional 10% buy-up option. This option allows you to elect to pay for additional coverage. This optional feature is not well publicized and you have to ask about it. “Buy ups” may require proof of health.
From general, solo and specialty practices to multiple partner practices, our in-depth experience encompasses a broad range of corporate entities and unique business structures within the veterinary field. For a consultation, please contact: Mackenzie Martin at (503) 697-0817 or [email protected]
Registered Representative offering securities through Independent Financial Group, LLC (IFG). Member FINRA/SIPC. Medical Professionals Financial Group is not affiliated with IFG. Registered Representative offering securities and advisory services through Independent Financial Group, Inc. (IFG) member FINRA/SIPC. Medical Professionals Financial Group and IFG are not affiliated entities. Office of Supervisory Jurisdiction 310 N. State St. Suite 206 Lake Oswego OR 97034. OR Insurance License #708320. Consult your legal or tax advisor for your specific situation.
Posted June 7, 2019