Every fall, open enrollment season means complicated forms to read and big decisions to make about insurance and other benefits offered at your job.
You may find the process a headache, but taking the time to evaluate your choices could save you thousands of dollars.
Three out of five (60 percent) workers say their employer offers an open enrollment period for benefits, according to a recent Nationwide Financial consumer survey. Workers typically can switch health care plans, add disability or life insurance, or sign up for other benefits.
In many cases, this is the only time to make changes until the next open enrollment period in 2019 unless you have a major life change, like getting married or having a child. So, it’s important to act.
“Don’t succumb to inertia,” says Daniel Galli, a certified financial planner in Norwell, Massachusetts. “Avoid just letting last year’s choices become this year’s choices without giving it some review and thought.”
To help offset rising health care costs, many companies are offering high-deductible plans coupled with health spending accounts (or HSAs) along with higher premium, low-deductible plans.
For healthy, young workers, the high-deductible plan with HSA is a favorite among financial experts. Withdrawals are tax-free on qualified medical expenses, and any earned interest is tax-deferred or tax-free if used for medical costs. Any money not used in a calendar year is rolled over to the next. Contributions to HSAs are also tax deductible, which can spell major savings come tax time.
“If a young healthy couple puts in the max contribution – $6,900 – and it’s taxed at 30 percent, that’s $2,000 they saved,” says Darin Shebesta, vice president of Jackson Roskelley Wealth Advisors in Scottsdale, Arizona.
If you or a family member has developed a chronic condition or you’re older, the better bet may be a low-deductible plan. While your premium is higher every month, your medical expenses will likely be, too. A lower deductible will curb how much you ultimately pay out-of-pocket.
Combine a low-deductible play with a flexible spending account, or FSA. Contribute pre-tax dollars to this account to pay qualified medical expenses during the year. Estimate carefully: Any leftover money you lose at the end of the year.
Pro tip: Don’t forget about prescriptions, says Tracie Sponenberg, senior vice president of human resources at The Granite Group. “A lot of plans carve out prescription plans or have separate, smaller deductibles for prescriptions,” she says. “Make sure they are covered in the first place.”
Dental and vision: Review all options your employer offers. Some plans may only pay for services from a specific network of providers, while others may offer coverage for out-of-network services. Chart out what you plan to spend in the next year on annual eye exams, dental cleanings and contact lenses or glasses. This coverage can be “a great budgeting tool throughout the year,” Shebesta says.
Disability: Here’s the grim reality: You’re more likely to become disabled than to die during your working years. That’s why it’s essential to carry disability coverage. Typically, the coverage replaces up to 60 to 70 percent of your income. If your employer pays for the premiums, then the income from the disability insurance will be taxable.
But if your employer pays the premiums and allows you to include them as part your wages for the year, any benefits from the disability will be tax free, says Aaron Graham, a certified financial planner at Abacus Planning Group in Columbia, South Carolina. “If this option is available, take advantage,” he says.
Life: Your employer may provide a basic life insurance policy at no cost along with supplemental coverage that you pay through payroll deductions. This is helpful if your spouse and children depend on your income.
The additional coverage is also convenient because it typically doesn’t require a comprehensive medical underwriting process. If you have health issues, it can be more affordable than private policies. But if you’re healthy, private policies may be cheaper and are also portable if you switch jobs.
Skip these: Your employer may offer cancer, accident or death and dismemberment insurance at an extra cost. Typically, these aren’t worth it because they cover very specific items and don’t pay out much, says Mychal Eagleson, a certified financial planner at An Exceptional Life Financial in Indianapolis.
“Sure, they could probably get a marginal benefit,” says Eagleson. “But usually we find it’s better (to) put the money into an emergency fund they can use, if needed.”
Ancillary benefits: Don’t forget to take stock of other perks such as commuter benefits, pet insurance, legal services and wellness initiatives. Always check the fine print for exceptions and limitations.
Those with children or caring for an incapacitated adult should consider contributing to a dependent care FSA. You can sock away pre-tax dollars to cover daycare costs for your child. Like a health care FSA, you lose any remaining dollars at the end of the year.
Make a change: For bigger benefits like health and dental/vision insurance, HSA and FSA contributions and life/disability insurance, you must wait until the next open enrollment period or experience a life event to make a change. The latter generally includes:
- You get married.
- You get divorced.
- Your spouse gets a new job.
- Your spouse loses a job.
- You turn 26 and lose your parent’s coverage.
- You have or adopt a child.
- Your spouse passes away.
If you’re married: The process of choosing the best benefits becomes even more complex when there’s two of you. Make sure to compare benefits side-by-side from each of your employers before making a final decision, says Breanna Reish, owner of Wealth of Confidence in Riverside, California.
“You may have this and I have that, so you want to pick the best parts of each,” she says. “It’s a puzzle.”
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