Wait! Don’t just blindly select the same benefits you had last year!
You don’t need to do too much work, but open enrollment is a great opportunity to make sure you’re taking advantage of the benefits your employer offers - besides, you deserve the best benefits you can get!
If it feels a little daunting, reach out - for people who don’t work with me on an ongoing planning basis, specific reviews with me start at $250 (and you can put time on my calendar in less than a minute using THIS LINK).
But if you’re going to go it alone, please just keep these things in mind:
The “better” health insurance plan has higher premiums (which might mean you spend MORE, not less).
HSA contributions through payroll save you more on taxes.
Using FSAs could save you money on taxes (but they may also cost you more).
Life insurance through work might be more expensive than buying it outside of work.
Disability insurance is important! If your employer doesn’t pay the premium, consider signing up anyway or buying a policy outside of work.
Not everything can be accomplished during open enrollment (and not everything needs to be done during open enrollment).
The “Better” Health Plan
Most of the people I talk to consider only part of the equation when they select a health plan - either what’s covered OR the premiums they’ll have to pay.
Clearly, I disagree with that approach. Cheaper isn’t necessarily better, but neither is more coverage. You should be considering the TOTAL COST and the TOTAL RISK and how that fits into YOUR SITUATION.
When I review health insurance options for the people I work with, I consider the services they had last year as well as the services they expect to have in the next year - then I apply that to their health plan options and determine how much they would have paid under each plan.
I think of this as the expected medical cost. Add the premiums of each plan, and VOILA! You now have an expected TOTAL COST of the plan.
But that’s not where it stops. We also need to consider the risk of a catastrophic event happening - some really expensive medical event. For this, I look at the deductibles and the “Out of Pocket Max,” which is the maximum amount you’d need to pay for anything covered by the plan. Adding those numbers to the premiums gives us another angle to analyze the differences in the plans from.
Saving Money on Taxes with HSAs
Health Savings accounts (HSAs) are pretty great. If you don’t believe me, you can check out this post I wrote about HSAs in the last year.
Now, HSAs aren’t technically specifically tied to open enrollment, but there are a couple of things you should consider.
First, you’ll only have access to an HSA if you enroll in a qualified High Deductible Health Plan (HDHP).
Second, some companies allow you to contribute to an HSA through payroll, and you may only be able to make adjustments to that during open enrollment.
What are the benefits to making HSA contributions through payroll? I’m glad you asked!
HSA contributions are always tax-deductible, but when you make them through payroll, you also get to avoid FICA taxes (7.65% for most people). On top of that, it will decrease how much is withheld from your paycheck in federal (and maybe state) income taxes!
The downside, if you can’t make changes to your payroll HSA contributions throughout the year, is that you want to make sure the contributions you are making are affordable.
Lastly, some employers match HSA contributions - this DEFINITELY needs to be factored into your health plan choice!
Flexible Spending Accounts (FSAs)
FSAs work kind of like HSAs do - money gets taken out of your paycheck pre-tax, and you get to use it for qualified expenses tax-free.
But there are a couple of key differences.
First and foremost, HSAs are always yours - whether you use the money or not, you get to keep it. FSAs… not so much. They’re often referred to as “use it or lose-it” accounts because if you don’t use the funds by the end of the year, well, you know the rest.
FSAs are also specific. Usually, I’m either dealing with dependent care FSAs or health FSAs, but there are other types.
There’s a lot more that could be said about FSAs, but the last part I want to highlight for this post is that using a dependent care FSA (often used for daycare) limits the dependent care credit you may be eligible for. If you have access to a dependent care FSA, consult your tax preparer about which option is more beneficial for you.
Life Insurance Through Work
Getting life insurance through work is usually pretty easy, but there are some things you should consider.
Generally, this life insurance is offered (at least up to a certain amount) without considering your health - that’s not usually the case for life insurance! So what happens as a result? Less healthy people (i.e. people who are more likely to USE the life insurance) are more likely to rely on their employer’s plan for their life insurance needs as opposed to going through the process with an outside insurer. This process is known as “adverse selection,” and it typically causes insurers to charge more for insurance in group plans than they might charge a health individual.
So what?
Well, if you’re relatively healthy, you should probably shop around for your insurance needs. You may be able to find lower-cost insurance outside of your employer plan. If you’re not able to find anything better, you should probably utilize your employer’s plan.
Other life insurance considerations:
Generally, your premiums through work will increase as you age. You may be better off locking in a level premium for 20-30 years.
And possibly the MOST important point - if you lose your job, you may also lose your life insurance if you rely on your employer’s life insurance plan.
Disability Insurance
It’s usually an afterthought - but it shouldn’t be!
Most people are more likely to need disability insurance than life insurance - whether it’s due to injury or sickness, disability insurance will help cover your loss of income while you’re still living.
Things to know about disability insurance:
There are two kinds - Short-term and Long-term. Short-term usually covers 3-6 months, and Long-term may cover as little as 2 years or maybe even until you’re 65!
If your employer pays the premiums, the benefits are generally taxable (unless the premiums paid are reported as taxable income). It’s important to consider whether the after-tax benefits would be high enough to support your income.
If you pay the premiums (either for your work plan or for insurance outside of work), the benefits generally won’t be taxable.
Different disability policies cover different amounts of disability - it’s important to know what you’re signing up for! “Own Occupation” disability insurance will generally be the most generous in paying benefits (paying if you can’t perform the SAME occupation you had when disabled), but it will also be more expensive than an “Any Occupation” policy, which may not pay benefits as long as you can find a paying job.
There are things that can be (and must be) done OUTSIDE of open enrollment
For instance, you can generally change your 401(k) allocation or contributions whether it’s open enrollment or not.
If your employer offers an Employee Stock Purchase Plan, there are likely enrollment periods that DON’T align with open enrollment for other benefits.
That said, open enrollment can be a good time to review ALL of your benefits (doesn’t that sound like fun?).
Conclusion
Maybe it doesn’t need a review EVERY year, but an occasional check-in can ensure that you’re not leaving any benefits on the table.
If you want some help, you can use this link to schedule a meeting with me or this link to start your plan in my planning software (RightCapital).
As always, keep in mind that you don't have to go it alone. I’m Austin Preece, a fee-only financial planner in Eau Claire, Wisconsin, and I work virtually with people across the US. Check out my website to see what it's like to work with me and reach out if you have any questions.
If you found this post helpful, help spread the word! Share with friends and family that you think may benefit as well. But remember, this is solely for educational purposes - it's not advice.
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