Navigating the waters of health insurance plans, flexible spending accounts (FSA) and deductibles can be confusing and present tough, but important choices. So, when you get the email from your company about open enrollment, it’s worth it to take time look at what you’re really getting. Here are some reasons why you should review your benefits:
Big changes in the year ahead
Getting married or divorced? Having a baby? Anticipating major medical expenses? If you’ve got life changes happening over the next year, make sure your benefits reflect that. For example, if you’re getting married, you might need to compare your health care benefits to your future spouse’s plan to see if you want to join theirs instead.
Open the benefits packet, read the packet
Employers go to great lengths to arm employees with helpful health benefits information. The first step toward success is to block out some time to go through the materials. Know how much your health benefits cost you, or maybe your employer picks up 100% of your premium. The more knowledge you have about your benefits, the more satisfied you’ll be.
If you’ve read the materials and are still not sure what to look for, ask for clarification. Many companies set up time for employees to meet with Human Resources about their benefits during open enrollment. This is also a good time to go over your benefits with your financial planner.
Measure your needs
You may think the more health insurance, the better. But you may be paying for coverage in your policy that you don’t need. Instead, make an assessment based on your family’s real health needs.
If you or someone in your family has special needs, or a chronic health condition, plan for that. But if you’re healthy, look at lower premium options. For instance, with a high-deductible health insurance plan you’ll pay out of pocket until you reach your annual deductible (usually several thousand dollars), but your monthly premiums can be significantly lower than traditional health plans. On the other hand, if you have ongoing health issues or school-age kids that will likely need doctor visits—and maybe even an occasional emergency room visit—a plan that has higher monthly premiums, but a lower overall deductible might be more cost effective. Make some assumptions for the coming year and do the financial calculations.
Explore a flexible spending account
A flexible spending account allows you to set aside money tax free for qualifying expenses. Essentially, you can reduce your taxable income by paying for things you may be purchasing already. The IRS’ Publication 502 explains what’s covered and what’s not, and it includes a wide range of items, from medicines to crutches to acupuncture. Even some home improvements are covered if they’re medically necessary (think entrance ramps, handrails, and lowering or modifying kitchen cabinets or equipment).
If you’ve never participated in an FSA, give it consideration this coming open enrollment.
FSAs operate on a use-it-or-lose-it basis, where money put into the account is lost if it isn’t spent in the contributing year. So, what if you find yourself on the wrong end of a use-it-or-lose-it FSA with time running out and a large balance? Some employer plans may offer a grace period to spend unused funds from the FSA each year, provided the expense took place in the contributing year, or the plan may allow you to roll over $500 from one year to the next. It depends on the health plan specifics and in some cases must be directly requested.
Think strategically with a health savings account
Don’t think of a health insurance policy just as something you call upon when you’re sick. Think of it as a part of your financial wellness. A health savings account (HSA) allows you to contribute tax free into an account that rolls over year after year. If you’re young and/or healthy now, what you contribute this year likely won’t be used before year’s end. The HSA contributions can be placed in a savings account or if available, invested in a mutual fund (options vary by employer).
Money goes in tax free and comes out tax free if you use it for qualifying medical expenses (now, or later in retirement).
There’s no use-it-or-lose-it provision, and there’s a tax advantage to using it in retirement to pay for medical expenses, including premiums. That way, you can use your 401(k) or other savings to pay for other things.
Life Insurance
It is generally not a good idea to have the majority of your life insurance coverage through your employers, as your employment and insurability may change and the underlying policy may not be portable (i.e., you may not be able to convert it to personal coverage). Nevertheless, if life insurance is offered to you, be sure to ask your employer about the portability of the plan.
Open enrollment can be stressful but keeping these things in mind will help you navigate the many decisions you face. If you still have questions, we’re here to help. Give us a call.
