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Add Hundreds to Your Paycheck

Every year, you get a chance to make a decision that will have a big impact on your paycheck. The right choice can mean saving hundreds or even thousands of dollars. The wrong choice can cost you.

If you have health insurance at work, November is typically the month when your health plan has its annual enrollment period. Depending on your plan, you can add or remove dependents from your policy, set aside money to cover medical expenses, or even choose among various levels of coverage for yourself and your family. Choosing the right options can make the difference between saving a bundle and spending too much.

The coverage you need
In response to soaring health insurance costs, many companies have scaled back the coverage they provide to employees. Ford (NYSE: F  ) , GM (NYSE: GM  ) , and Chrysler, for instance, recently asked their employees' union, the UAW, to assume responsibility for providing health benefits. As more companies look for ways to save, you may end up paying more out of your own pocket in order to get comprehensive coverage.

Before you opt for the priciest policy, however, consider how much insurance you really need. If you're in good health, choosing a policy with a higher deductible or larger co-payments can translate to much lower premiums. Even if you pay more to see a doctor, the increase in your take-home pay will often leave you ahead.

Looking at your past year's medical expenses can give you an idea which coverage options might save you the most. While you shouldn't ignore the possibility of an unforeseen illness or injury, basing your decision on past experience is a good starting point.

Enlist Uncle Sam's help
Once you pick your coverage and have an idea of how much you'll spend on medical bills, you might be able to get a tax break for those costs. If your employer offers a flexible spending account or flex plan, take full advantage of it.

This month's issue of the Motley Fool Green Light newsletter, which comes out this afternoon at 4 p.m. EST, discusses flex plans in detail. Although many people think that dealing with such plans is too much of a bother, using a flex plan can give you big tax savings. Each dollar you save in a flex plan can pay you back as much as 40 cents or more on your income tax return. That's worth a little effort.

Multiple-choice test
Finally, if you're part of a family, you have to figure out how to get your dependents covered. Spousal coverage is usually simple, but many companies, including 3M (NYSE: MMM  ) and Anheuser-Busch (NYSE: BUD  ) , also allow unmarried domestic partners to get health benefits. If your partner also has employer coverage, you've got a choice to make: who goes on which plan. Many employers only subsidize your own individual coverage, making employees pay for family members. That usually means that it makes sense for each member of a couple to keep their own individual coverage.

If you have kids in the picture, it's often simply a matter of seeing which plan is cheaper. But be sure to consider the quality of coverage as well -- lower premiums may cost you more in the long run if the coverage isn't as good.

Understanding your health insurance isn't always easy. But the potential savings make it worth the effort. Since you only get to choose once each year, make your choice count. Your wallet will thank you.

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Dan Caplinger
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Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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