The months of October and November are when open enrollment takes place for most corporate employer benefit plans as part of large corporations’ planning for the coming year. While it may be tempting to simply select the same options as you had in place for the previous year, it’s important to take the time to consider all of your available possibilities in relation to your complete financial picture. A recent Aflac report showed that 46% of people spend a half hour or less reviewing their health plan offerings. Don’t wait until the last minute to study your options or you may find yourself rushing through the process and making hasty decisions that could put your financial health at risk. The primary facets to think about are health insurance, life insurance, disability insurance, health savings accounts (HSAs) and flexible spending accounts (FSAs). Below are some key considerations to keep in mind for each.
Most employers typically offer several health insurance options for their employees. To determine which one is best for you and your family, think about how often you tend to visit a doctor, whether you take regular prescription medications, any anticipated changes to your health care needs (e.g., a new baby) and how much money you’ve been paying out of pocket. According to a 2015 Kaiser Family Foundation study, the amount that workers contribute to their health insurance premiums has skyrocketed by 83% over the past 10 years. In addition to your monthly premiums, you also need to factor in deductibles, copays, out-of-pocket limits and out-of-network coverage.
It’s a good idea to weigh your employer’s offerings against those that are available on the health care exchanges, as you might find a cheaper or better plan there. In either case, before locking down your health insurance plan for the coming year, double-check that your primary care physician, specialists and preferred hospitals are covered. You should investigate this information even if you’re staying on your current plan, as networks may change their preferred providers from year to year. Also check to see if your health insurance plan offers dental and vision benefits or if standalone plans for those services are available through your employer.
[Tweet "46% of people spend a half hour or less reviewing their health plan offerings."]
Life and Disability Insurance
For both life insurance and disability insurance, being on your employer’s plan may not be the most prudent choice for everyone and an individual plan may be the better option. If you change jobs frequently or anticipate that you may be moving on to a new position within the coming year, it may be better to purchase your own private individual life or disability insurance plan to ensure that you always have good coverage in place. Likewise, if you’re getting older but are still in good health, it’s often more cost-effective to pursue individual coverage, as employer plans generally have no medical qualifications. If you can qualify for preferred life insurance underwriting status, you’ll likely be able to get a cheaper plan with better coverage.
Most employers have a maximum amount that they offer for life insurance benefits, which is generally one to two times an employee’s salary. Would your family be able to live on that amount of money if something happens to you? If not, you should have individual coverage in place to supplement the coverage provided to you by your employer. For disability coverage, most employer plans have a monthly limit of $5,000 to $10,000. If you earn in excess of $150,000 per year, this payout may not be adequate to meet your family’s needs should you experience an illness or accident that renders you unable to work for a period of time.
Health Savings Accounts
To offset some of your out-of-pocket medical costs in a tax-advantaged way, you may want to open an HSA or FSA. A health savings account is a triple tax-exempt account (tax-free contributions, investment accumulation and withdrawals) that allows you to save money for qualified medical expenses. This is an especially good option for high-income earners who have high-deductible health plans (HDHPs). For 2017, the maximum annual HSA contribution limit for individuals will be $3,400, while a family may contribute up to $6,750. For those age 55 or older, a catch-up contribution for $1,000 per year is available.
If you’re eligible for an HSA, we recommend that you contribute the maximum amount and use it to build up an extra nest egg for your retirement health expenses. Although many investors feel they should prioritize maximizing their 401(k) investments, we believe you should still fully fund your HSA even if you have to reduce your 401(k) contributions in order to do so. For more information about the benefits of HSAs, please see our April 2016 article on that topic.
Flexible Spending Accounts
An FSA is a special tax-free account that is used to save money for certain out-of-pocket health care costs. An important difference between this type of account and an HSA is that FSA funds must be used within a given calendar year and may not be carried over into the following year. While the FSA limits for 2017 have not yet been announced, an additional $50 may be added to the 2016 limit of $2,550 in order to compensate for inflation.
Something to keep in mind with flexible spending accounts is that if you don’t end up needing as much money as in the past, you may be tempted to make unnecessary qualifying purchases (e.g., a new pair of glasses) just to spend the money rather than lose it. Consequently, we advise that FSA accounts only be used to cover predictable expenses such as child care coverage, expensive prescriptions for which the cost is known and nonurgent dental work that your dentist has recommended be done in the near future.
Before you submit your open enrollment paperwork, it’s a good idea to check that all of your designated beneficiaries are up-to-date. This is especially important if you’ve recently been through a life event, such as getting married or divorced or having a new baby, as you want to make sure that your insurance payouts or retirement money will go to the preferred individuals.
As financial planners, part of our job is to bring up issues that people don’t want to think about or address, and open enrollment falls into this category. Open enrollment considerations may not be fun, but if you’re willing to take a little extra time each year to select the proper insurance coverage for your unique personal and financial circumstances, you can save some money and ensure that you and your family will be well-served over the long term.