Fall is open enrollment time for many companies and for some people, open enrollment is stressful. Like most financial decisions, your choice of benefits should be based on your personal financial situation or your family’s financial situation. I see people get tripped up every year when they listen to the co-worker in the next office advise that the only health plan that makes sense is Plan XYZ and that the best way to get every dime out of the company is to choose Coverage ABC. It’s nice that your co-worker is so confident in his choices, but that doesn’t mean they’re the right choices for you.
Your goal during open enrollment is to choose the benefits that will best meet your family’s needs for the coming year at the most reasonable cost. Keep in mind that your family’s needs may differ from another family’s needs. And, the risk you’re willing to take on – for instance, how much of your family’s medical bills you want covered by an insurance company rather than your bank account – is likely to differ from family to family. This is just another case where it’s important to remember that personal finance is personal.
Before you elect benefits
Read through the entire benefit booklet. Don’t focus solely on the changes from last year. Focusing only on new changes may mean that you overlook something that didn’t pertain to you earlier but might be really beneficial now – anything from pet insurance to dental coverage that covers orthodontics.
On the flip side, don’t automatically assume that you need all of the benefits offered – especially if your spouse has access to benefits as well. Sometimes it’s difficult if your open enrollment periods don’t line up exactly but do your best to have the benefits information for both employers available – even if only for a short time. You may end up picking a few benefits from each employer.
Looking to the future
This may seem obvious but choose your benefits based on what is best for your family now and going into the future. What worked in the past may not be the best choice now due to changes in the benefits themselves or due to changes in your family. You may have more children to cover or your children may be more active. Or, your children may be older now and perhaps a different combination of benefits makes more sense. Marital status and the size of your family will also affect how you approach your benefit enrollment.
Medical insurance is usually the benefit that employees focus on most intensely during the period. In this area, be sure to examine the details available including whether your doctor is in the network, what happens if you see a different doctor, and what requirements will be on you for referrals for specialists. If you travel often be sure to check what happens if you have a medical need while you’re away from home. Also make sure that you understand any out-of-pocket maximums as well as any caps on benefits. Then, be sure you make adjustments to your financial plans to accommodate any changes in deductibles or co-pays – like putting aside funds earmarked for medical expenses.
Don’t assume that the prices or premiums are automatically better than you can get elsewhere. Consider that an insurance company prices life insurance for a group based on everybody who may be in the group – and the wide range of health and fitness levels that may be in a large group. If you’re healthier than the average person of your age and occupation you may find that you can get better rates with an individual policy. Also consider that, in most cases, you can’t take employer-provided life insurance with you if you separate from employment either voluntarily or involuntarily. It often makes sense to seek out an individual life insurance policy to meet the goal of providing for your family in the case of your death.
Long-Term Disability Insurance
Consider that your ability to earn a living is one of your most valuable assets and that asset deserves protection. Long-term disability insurance can help make up a loss in income due to illness injury or accident. This coverage generally does not replace 100% of your income. And, keep in mind that if you pay for this coverage with pre-tax dollars, any benefit you receive from the policy will be taxable.
Dependent Care Accounts
Dependent care accounts are accounts where you can hold pre-tax money that is deducted from your paycheck and use those funds to pay for childcare expenses. These accounts are use-it-or-lose-it accounts – meaning that unused funds do not roll to the next year so choose the amounts that you contribute to these accounts carefully. And, there is a limit for each of these accounts and that limit is based on your tax return- not the individual. For instance, if you file Married Filing Jointly you are limited to $5000 in a dependent care spending account per tax return – not per individual. If you are single or married and filing separately you are limited to $2500 in a dependent care account. So, if you’re married, don’t sign up for a $5000 contribution to a dependent care account if your spouse is already doing that.
Flexible Spending Accounts (FSAs)
Flexible spending accounts are another arrangement where money is deducted from your paycheck on a pre-tax basis and can then be used for certain medical expenses. Again, this is a use-it-or-lose it account so choose your amount carefully. Different from the dependent care account, you and your spouse can have flexible spending accounts if both of your employers offer them and each of you would separately be subject to the $2650 contribution limit. Some FSAs have “grace periods” meaning that you may get a little extra time after December 31 to use up remaining funds or, in some cases, you can carry over a limited dollar amount to the next year. Be sure to read and understand these details to avoid losing money at the end of the year. Also, make sure that you understand what expenses can be paid with these funds and what items can be purchased. For instance, you can’t use these funds to purchase over-the-counted pain medications, such as for a headache. But you can use them to purchase band-aids and first aid kits, pay co-pays for doctor’s visits and purchase prescription glasses and contact lenses.
Health savings accounts (HSAs)
A health savings account also lets you put away pre-tax money to be used for medical expenses, however it can only be used in conjunction with a High Deductible Health Plan. Your enrollment materials will specify which of the health plans offered are considered high deductible plans – for 2019, the IRS defines a high deductible health plan as one that has a deductible of at least $1350 for an individual or $2700 for a family. An important difference with an HSA is that you can roll unused funds over to the next year and not only keep them in the account, but you can also invest those funds. Then, you can tap those funds for future medical expenses. Plus, a bonus is that after age 65 you can use those funds for other expenses as well, however you will pay income tax on the funds used for non-medical expenses. Prior to age 65, if you use the funds for non-medical expenses, they will be subject to income tax and a 20% penalty.
Changes during the year
You should review the benefit options available to you and choose wisely during open enrollment. However, sometimes changes in your family situation will allow you to change your benefit elections mid-year. Life events such as changes in marital status, changes in employment – such as your spouse losing coverage due to an employment change – change in the number of dependents or a change in dependent eligibility – such as when a dependent loses student status or reaches the maximum dependent age – generally allow you to make changes to the affected benefits. But, that doesn’t mean that the employer is obligated to allow you to change all of your benefits. And, finding out later that you’re not that much healthier than the guy or girl in the next office and individual life insurance will cost more than you thought is not a life event in your employer’s eyes. Don’t reduce or skip a necessary coverage until you already have a replacement in place.
Some employers provide a wide array of employee benefits and some employers provide relatively little. In either case, take advantage of what you can and remember to supplement outside of your employer’s benefits if it is necessary to pursue your goals or protect your family. If you need life insurance in excess of what you can get through work, you need to get life insurance. If your employer does not offer long-term disability insurance, you need to look into your own long-term disability insurance. Use the open enrollment period to assess whether you are taking the steps necessary to protect yourself and your family and remember that you aren’t limited to only the benefits that your employer offers.