Here’s an ugly prediction about your finances in 2004: Your pay will remain flat, but your health-care bills will rise. Somehow, you must squeeze several hundred dollars from your budget just to break even.

The solution, however, might be as close at hand as the very same employee benefits package that’s causing this headache in the first place. With smart planning, you can plug that budget gap – and cement the foundation for your overall financial plan – by picking your benefits more carefully during the annual enrollment window this fall.

Many workers underestimate the breadth of their benefits. The fact is benefit plans commonly provide financial building blocks such as medical, disability and life insurance, tax-saving spending accounts, retirement savings plans, stock investments and more. Smart workers won’t overlook those benefits this year.

Too often, workers simply let their choices ride from one year to the next, experts say. That can be a costly mistake, especially in 2004, when a growing number of companies will force workers to shoulder higher deductibles, higher co-payments to visit a doctor or buy drugs, and higher monthly insurance premiums.

With employees at large Bay Area companies already paying $1,015 for their share of the medical premium – nearly double the cost in 1998 – middle-income families will see their monthly medical costs rise $30 or more a month, predicted Jeff Klonoff, a health-care consultant with Hewitt Associates.

That means cash-strapped workers increasingly must make tough choices – and settle for a fraying safety net.

Tim Biddle, a benefits consultant for Segal, saw this play out this year when his then 21-year-old son, Josh, got his first job with an employer that offered a range of benefits at discounted group rates but picked up none of his tab. Josh signed up for vision insurance because he wears glasses, and dental coverage because he figured he would need to have his teeth cleaned. But he passed up medical and disability coverage because he’s young and healthy.

He made a common mistake, financial planners say. Although dental and optometric bills are predictable budget-pinchers, he left himself vulnerable to devastating bills if had to rush to the emergency room with a broken foot or was disabled in a car accident and unable to work.

The bill for a “root canal hurts, but it doesn’t change your life,” said Stanford T. Young, president Financial Clarity in Mountain View, Calif. “Wiping out your savings changes your life. You have to insure against those catastrophic things.”

Here’s a look at a few ways to squeeze more from your benefits package:

Health insurance

Chances are you face a raft of complex decisions. They range from the type of medical plan to the breadth of the coverage to the price tags.

Bella Berlly, a principal with GoalPath Financial Planning & Management in Los Altos, Calif., makes the first cut by comparing the monthly premiums. If there are any “show-stoppers” that are simply unaffordable, scratch those plans off the list.

But don’t stop there. Analyze whether you can keep your doctors in the remaining plans, co-payments for drugs and other coverage limits. Also identify plans that will cover the care you anticipate most. If you require physical therapy, for example, lean toward a plan that covers more sessions.

And if your spouse works, don’t forget to factor any coverage available at the other company, too.

Flexible spending accounts

The vast majority of workers pass up flexible spending accounts – or underuse them – and miss out on stunning tax savings that could boost take-home pay. You can set aside up to $5,000 from your paycheck – before taxes are deducted – into a special account you can tap to reimburse medical bills that your insurance doesn’t cover. The plans got even more enticing Sept. 3, when the Internal Revenue Service ruled that the plans can be used to pay for widely used over-the-counter drugs including Advil and Claritin.

Workers typically bypass this perk for two reasons. One, it can be a hassle to fill out the paperwork, though Stanford, eBay and a growing number of Silicon Valley companies are offering a special debit card to ease the headache. Most people are scared off, though, because they must forfeit any money left in the account at year’s end.

“That argument simply doesn’t hold water,” counters Karen Brosi, director of financial planning for Moorman and Co. in Palo Alto, Calif. A $60,000 worker could spend just $613.50 of $1,000 she set aside – and still break even for the year. “Who cares? You can lose almost 40 percent and you’re no worse off on the cash-flow side than if you didn’t set the money aside.”

Dependent care plans

It’s the same concept as the flexible spending account, except that it can be used to pay for childcare or taking care of a dependent parent. With a $5,000 cap, a $60,000 worker could foist more than $1,930 of their tab onto the government.

As good as it is, some dual-income families might come out ahead by forgoing this perk in order to claim a potentially bigger dependent care tax credit on their federal tax return, Brosi said. Crunch the numbers.

The 401(k)

When cash is tight, workers sometimes scrimp on saving for retirement. That’s misguided, because the pretax savings can actually boost your weekly take-home pay.

It also can cost you “matching contributions” that companies commonly kick in to induce workers to squirrel away money in their 401(k)s.

Some low-paid workers might qualify for a tax credit, too.

Other issues to consider: Can you afford to ratchet up the amount you save? And workers over 50 should consider taking advantage of higher “catch-up” provisions that allow them to save more than the $12,000 cap.

Stock plans

Public companies commonly offer employee stock purchase plans, or ESPPs, that enable workers to buy stock at a 15 percent discount.

A host of other Silicon Valley companies offer even bigger discounts.

There’s a debate over how long to hold that stock, though. Some workers are wise to sell it immediately, because they already rely on their companies for their paycheck and perks ranging from medical insurance to stock options. But others can afford the risk that the stock will plunge in value while they’re holding on to qualify for lower long-term capital gains tax treatment.

Of course, all these choices about employee benefits beg a practical question: Who can handle such a daunting review?

You can – if you begin nibbling at the task now, before the enrollment period opens later this fall, says Jerry Nightingale, president of Nightingale Financial Advisory in Palo Alto.

“You eat an elephant a fork at a time,” he quipped. “Inch by inch, anything is a cinch.”