Open enrollment happens annually at many companies. It’s the season when employees can make adjustments to their benefits. Employers are often attempting to save money. Employees are attempting to get more benefit bang for their buck.
Open enrollment is a fantastic opportunity to maximize your employer benefits. It’s the perfect time to review your family needs for the next calendar year. Think strategically. Do some math. With a little bit of planning, you can navigate open enrollment like a champ.
Open enrollment is a brief season. Most of us get two weeks to review benefit changes and select what we want for the upcoming year. These are important decisions and should be taken seriously.
In this post, we are going to review some of the common benefit offerings that are available during this time.
Health Insurance — Medical
Medical insurance is the biggest benefit expense for most employees. Employers typically offer a few choices. Each choice requires a bit of math and an understanding of your family’s health.
Let’s define some terms before we dig too deep. These are basic definitions. For a more thorough list go here.
Premium — The amount paid by the employee for medical health insurance.
Deductible — The fixed amount paid by the insured before the insurance company begins paying for covered medical expenses.
Copayment — A form of cost-sharing between the insured and the insurer. These are typically due at the time of treatment.
Coinsurance — Another form of cost-sharing between the insured and the insurer. Insurers often pay a set percentage after the deductible is met. Once a maximum out-of-pocket amount is met, then the insurance company will pay 100% (but not always).
High premiums often have smaller deductibles, copays, and coinsurance. Smaller premiums typically have larger deductibles, copays, and coinsurance amounts.
What should one do?
We carry a high-deductible plan. Why? We are relatively healthy and rarely need medical treatment. Neither of us requires prescriptions.
Unhealthy families might need higher premium plans. Do the math. How much did you spend on medical treatments last year? Compare that to the other premiums, deductibles, and coinsurance amounts. Select the one with the best financial benefit and brings peace to your home.
If you select a high-deductible plan then a Health Savings Account is a great option.
Health Savings Account
This is one of a few things that the government got right. What is a health savings account (HSA)?
An HSA is a tax-advantaged account for individuals or families who use a high-deductible health plan. Contributions to an HSA are made with pre-tax dollars (SCORE!).
Qualified medical expenses can be paid with HSA funds. When these funds are properly used there are no negative tax implications.
HSA contributions reduce taxable income. The fund grows tax-free (interest and investment income). Taxes aren’t levied when the funds are properly used.
It’s a triple-threat investment opportunity.
Strongly consider opening an HSA if you’re in a high-deductible plan. If your employer doesn’t offer an HSA check with Fidelity or a similar company.
Finally, an HSA is portable. When you change employers it goes with you. It’s not a “use it or lose it” benefit like a Flexible Spending Account.
Flexible Spending Accounts
Flexible spending accounts (FSA) are tax-advantaged accounts used to pay for certain medical expenses. Those who are in a low deductible plan can leverage an FSA.
We used an FSA before transitioning to the HSA.
An FSA is a use-it-or-lose-it benefit. Invested funds are forfeited if not used by a specific date. It’s important to accurately plan how much to pull from your check and ensure it’s fully used.
Why use one?
Using an FSA lowers your taxable income. Imagine you have $2,500 in prescription bills each year. Contributing to an FSA to pay for them could save most families between $250 and $500 per year.
Persons with an HSA cannot have an FSA. There is a Limited Purpose FSA for those with an HSA. Funds from a limited-purpose HSA can only be used for dental and optical expenses.
Short-Term and Long-Term Disability
Short-term disability insurance provides income coverage for those who are unable to perform their job. Illness or injury often prevents people from working.
Disability insurance can be expensive when bought directly. It’s best to purchase it through an employer.
Short-term disability will cover between 50% and 80% of a person’s income. The payouts typically last between three to six months.
Long-term disability typically covers less of one’s income but can last as long as five years.
Neither short-term nor long-term disability is an excuse for not having a solid emergency fund in place, however. All three are needed for a strong personal financial plan.
I have two co-workers currently out of work because of medical issues. Both have burned through their short-term disability benefits and are now tapping their long-term benefits.
Term Life Insurance
Employer term-life insurance is inferior to coverage purchased directly from an insurer.
Why is it inferior? It’s not portable. When you leave, for any reason, your coverage ceases.
Some people are unable to get coverage on their own, however. An employer-sponsored group plan is great in those situations.
Group coverage is convenient. It’s limited in most instances, however.
Term life insurance is affordable. Companies such as Policy Genius and Ethos have made the process simple.
If you’re unable to get coverage on your own get what you need during open enrollment.
Here’s an article that I wrote about various insurance coverage.
Dental and Optical Insurance
These two options are generally affordable.
Don’t mess with your teeth! Get them cleaned twice per year and immediately correct any issues. It’s easier to do with dental insurance.
I recently had a cracked filling and needed one replaced. Out of pocket, it cost me $55. Our daughter required braces. Dental insurance severely reduced that expense and the balance was paid through our FSA.
Vision is super important. Plus, degenerative eye diseases can be identified during annual checkups.
Strongly consider both benefits.
Legal Benefit
Employers will offer miscellaneous benefits. We have a legal option. I pay about $15 per month for this benefit.
What do I get?
An attorney designed will for zero dollars out of pocket. Legal representation for contract disputes and other legal issues at a discounted rate.
It’s a pretty sweet deal in my opinion.
Open Enrollment — Crush It!
Take the time to review your open enrollment options. Do the math. Think through your future. These are important decisions.
Crush open enrollment this season!