It’s that season again. Your employer is sending repeated emails exhorting you to make employee benefit decisions you don’t feel comfortable making, by a deadline that does not match your personal schedule. And, oh yes, where did you store the access information for the open enrollment site?
Open enrollment is a process that few enjoy and that won’t be going away. Employees are now in charge of securing their own financial wellbeing. Good bye pensions. Good bye living with your children in retirement. And as a society, we’ve never even said Hello to universal health insurance. The financial decisions you make for yourself matter.
Here are some big picture planning ideas to keep in mind along with some specific tips for this year’s open enrollment.
Best practice rules of thumb:
Yes, making good choices here is hard. The industry is a mess. The key point is: Do you need to conserve cash or are you sufficiently financially resilient to maximize provider choice? If you have the dough, look for high deductibles (you can afford to self-pay the first many dollars of health care costs each year) and choose the plan with lowest penalties for going out-of-network for medical care. It’s probably the plan with the higher premium; personal choice is getting more expensive. If you are short on cash, aim to stay in-network for care. Your out-of-pocket costs will be substantially less. New in many plans this year: For couples without children, or with children over the age of 26, look for an Employee + Partner premium option. It will be less expensive than the more traditional Employee +Family option. (And speaking of traditional, remember that “partner” is now more liberally defined. Check to see if your partner might qualify.) Vision and dental insurance are both famous for not covering much. But if you expect a big dental bill and/or if you have routine recurring eye care expenses, consider opting in to these coverages.
Health savings accounts are only available if you are in a high deductible health insurance plan. The 2016 contribution limits are: Individual $3350 (with an additional $1000 if you are over age 50) and Family $6750 (with an additional $1000 if you are over age 50). The beauty, however, is that these balances grow tax-free and are withdrawn tax-free later in life. Try not to take withdrawals now; tax deferral is valuable. Flexible spending plans (for both medical and child care expenses) are use-it-or-lose it plans. Don’t lose; submit reimbursements for the full amount you contributed by the deadline each year—or don’t enroll in this benefit.
Is this the year you will finally understand what is being offered? If so, look for the definition of “covered earnings” and find out if your potential monthly benefits are capped at a particular dollar amount. Would benefits be tax-free or taxable to you? (HINT: If you pay premiums with pre-tax dollars, benefits will be taxable. Ask if you can pay premiums with after-tax dollars.) Especially if you have financial dependents, pause to consider if employer-provided coverage would be sufficient protection if you are disabled. Should you purchase additional coverage on your own?
Accept whatever your employer offers at no-cost to you. Check your beneficiary designations each year for accuracy. (NOTE: Don’t name a minor as a beneficiary; minors are not eligible receivers. And if you are recently married, is it time to switch the beneficiary designation from your parents to your spouse?) If you want more coverage than your employer offers at no-cost to you, don’t just opt in to supplemental coverage at work. Shop the market. Supplemental coverage is typically much more expensive than coverage you can buy yourself on the open market.
It can even be transformed in your mind into an annual reminder to check-up on your whole financial planning picture, an example of your taking charge of your financial destiny in a proactive manner. While you are pondering if this point of view is within your reach, consider the photo for this blog post. It’s the last flower bouquet from our garden this year. Gathering and enjoying such bouquets is a routine autumn event. Just like your open enrollment.
Originally published: November 12, 2015