November marks the beginning not only of the holiday season, but also of another season: open enrollment.
This is when many employers offer you the opportunity to review your benefits package for the coming year — your health, life, disability and long-term care insurance plans and other benefits.
Although open enrollment season runs from Nov. 1 through Dec. 15, many employers require you to decide by Nov. 30.
Most employers offer a variety of plans, including:
- EPO (Exclusive Provider Organization).
- HMO (Health Maintenance Organization).
- POS (Point of Service).
- PPO (Preferred Provider Organization).
You might also have the opportunity to open a flexible spending account (FSA), health savings account (HSA) or health reimbursement account (HRA).
The FSA lets you and your spouse set aside up to $2,600 each to pay for medical expenses tax-free during the year. Typically, you must use the money by year-end or lose it (although some FSAs will cover expenses through March 15 of the following year). So, you must estimate how much you think you’ll spend on health care over the next 12 months.
By comparison, an HSA (which is also tax-deductible) lets you contribute up to $6,900 for a family in 2018, and another $1,000 if you’re over 55. Unlike with an FSA, you don’t have to use all the money in one year; instead, you can roll it forward. HSAs are generally used when you have a high-deductible insurance plan.
You generally can’t contribute to both an HSA and an FSA at the same time — except that some employers offer HSA eligible, limited-purpose FSAs that cover only certain expenses, such as dental and vision costs.
Finally, an HRA is funded by your employer to help you pay for deductibles, coinsurance and PPO copays. (You can’t use it to pay for monthly health insurance premiums.) You can pair an HRA with any health insurance plan.
Deciding which account is right for you depends on your circumstances. Your Financial Planner can help you make the best choice.
If your employer offers life insurance, you should take it — but never assume that’s all the life insurance you need. Such policies usually provide a death benefit of only one or two times your annual salary, and that’s probably not enough to adequately protect a spouse and children. Also, this benefit goes away if you quit or lose your job — but your risk of death doesn’t.
Buying life insurance on young children generally isn’t cost-effective or necessary. We generally don’t recommend taking voluntary accidental death and disability insurance or critical illness insurance either, as they also tend not to be cost-effective.
Do, however, take short-term and long-term disability insurance. But pay for it with after-tax money — not pre-tax, even if even if you are offered that option. That’s because paying for the insurance pre-tax turns any disability checks you receive into taxable income. Paying the premiums after-tax keeps the benefits tax-free.
Long-term care insurance
We often recommend long-term care insurance because of the exploding cost of care. If you buy a long-term care policy through your employer, remember that you lose the coverage if you quit or lose your job. So shop in the commercial marketplace for the best policy you can find, and then compare it with the policy offered by your employer — or perhaps use a private policy to supplement your workplace coverage.
4 common mistakes
Avoid these mistakes that people make during open enrollment:
1. Automatically re-enrolling in whatever plan you had last year. This is the biggest — and most common — error. Take the time to review the other plans, because their features — cost, benefits, copays, deductibles, policy limits, coverage for out-of-network doctors, etc. — often change year to year. Thus, the plan that was right for you last year might not be your best option next year.
2. Miscalculating your needs. You can’t say that you’ll suffer a major injury or illness next year, but you can reasonably estimate the amount your family might spend on health care overall, based on everyone’s general health, whether you wear eyeglasses and other factors. This can help you decide whether to choose a high-deductible or a low-deductible plan. (The higher the deductible, the lower the monthly premium — and the more you must pay out of pocket before the insurer pays any bills.) So evaluate your potential medical needs carefully so you don’t wind up facing medical bills you can’t afford.
3. Focusing on low premiums. Choosing insurance with the lowest premium means you’re also choosing the one with the lowest benefits. Thus, your out-of-pocket costs could be more than you can afford. Think this through carefully.
4. Resisting switching plans just because you want to keep the same doctor. You probably have a doctor you like, but you might have a medical condition that requires specialists in a different network. Think objectively about your medical needs.
As you examine your options, ask yourself these questions:
1. Does the plan you’re considering cover your regular medications?
2. Are you OK with using generic drugs if your plan requires them?
3. Is your spouse employed? If so, find out if it’s cheaper for you to become a participant in that plan instead of your own.
As you can see, open enrollment isn’t something to be taken casually. As with every financial decision, it requires careful research and evaluation. We’ve covered only some of the main issues here, and there are many details we can’t cover in this space.
Because the topic is so wide-ranging and often confusing, talk to your financial planner about the choices your employer offers. We can help you examine the details and determine the best fit for your circumstances.
And we’re happy to do the same for your family and friends.
This material was prepared for informational and/or educational purposes only. Neither Financial Engines Advisors L.L.C (also referred to as Edelman Financial Engines) nor its affiliates offer tax or legal advice. Be sure to consult with a qualified tax or legal professional regarding the best options for your particular circumstances.