It’s Open Enrollment Season! Here’s What You Need to Know.
Updated: Nov 13, 2019
Each year in October or November, employees are given the opportunity to update their employer-provided benefits for the upcoming calendar year. This is called “Open Enrollment.” The packages vary, but most employers offer some form of Health Insurance, including Dental or Vision, Retirement, Life Insurance, Disability and in recent years, a Healthcare FSA (Flexible Spending Account).
While some of us will not make any updates, it is an opportunity to review any changes (including anticipated) to your health, within your family or job, and retirement plan. Please note that if you have a status change within the year (new baby, marriage, divorce, etc.), you have a window when you can update your benefits outside of the open enrollment period.
Okay, let’s begin to break this down…
1. Health Insurance
Do I choose a HMO, PPO, or a HDHP? What do these even mean?! Okay, let’s start there. First, do not get hung up on what the acronym means. The full name is rarely used and does not mean much to the average consumer. Below are the 3 types, what they mean, and who might benefit the most:
a) HMO - Less expensive premiums, but you need a primary care doctor for referrals to specialists, otherwise, you will pay the entire cost for care. Good for those who do not go to the doctor often and want to keep out of pocket costs low.
b) PPO - More expensive than the HMO, but you can choose to see any “in network” doctor for a small fee or co-payment. In network is key! If you see a doctor out of the network, your out of pocket expenses will be higher. Also, these plans tend to have deductibles, meaning you pay out of pocket until the deductible is met. Good choice if your health is not so great and you or your family go to specific doctors and clinics.
c) HDHP (aka, High Deductible Health Plan) - This may be the exception to using the acronym rather than the full name. It is the least expensive plan, but your out of pocket costs are highest. Not to worry though, these plans are typically paired with a HSA (Health Savings Account) to help cover these costs. This is the only triple tax-free account around. You (and possibly your employer) contribute money tax free, the account grows tax free, and you withdraw it tax free - as long as you use it for qualified medical expenses. Good choice for those who are young, single, healthy and want an additional savings vehicle. Whatever money is left in the HSA stays invested and can be used at a later time.
2. Healthcare FSA (Flexible Spending Account)
If your employer offers this type of account, please check it out. Other than a High Deductible Plan, which will have a special FSA for out of pocket dental and vision expenses only, a regular FSA can be used for any qualified health care expense. You contribute pre-tax dollars and withdraw the money tax free to pay for out of pocket healthcare. The account may also be used to pay for certain over the counter products. There is a $2,750 limit in 2020 and unlike the HSA, it is use it or lose it unless your employer allows you to rollover some of the money in the following year (up to $500). So, how much should you contribute? Add up your out of pocket health care expenses from the previous year and make any adjustments based on next year’s projected costs. If your employer allows you to rollover $500, perhaps you include a $500 buffer.
3. Dental and Vision
These are typically very low cost through an employer and therefore, little excuse not to purchase. You end up with one set of teeth and your eyes are critical. Take care of them!
My bread and butter! If your employer offers a retirement plan (401k, 403b, 457b, SIMPLE IRA, or the like), you should be contributing up to the employer match, if available. If not, contribute what you can, but have a plan in place. You should be able to update your contributions outside of open enrollment, but this is a good time to review your progress toward retirement. There are online calculators for the do it yourself-er, or hire a financial professional to help you put together a plan. As the saying goes, failing to plan is planning to fail.
5. Life Insurance
Many employers offer group term life insurance equal to 1x your annual salary at no cost to you. You may have the option to purchase additional (2x or 3x salary) at a small premium. If you have a family or others who rely on your income, you will want to pay the couple of dollars it costs for a supplemental plan. However, depending on your situation, this may still not be enough and you will need to go through an outside insurance company to purchase additional insurance. How much do you need? One rule of thumb is to use 10x your annual income, but talk to an insurance or financial professional to determine what's best for your situation.
Last, but not least... Disability may be the last thing on your mind, but you are more likely to be off work with a sickness or disabling injury (non-work related) than dying. What happens when you are not working? You are not earning income. This is where disability insurance kicks in and pays, on average, 60% of your income prior to becoming injured and unable to work. Employers offer long term disability (time period varies, but usually one year or more) at little to no cost. It’s worth a few bucks out of pocket if something tragic happens. Short term disability can cover a few weeks up to one year, but also varies. You may choose to cover any short term illness or injury with a healthy savings account, but if not, spend the extra dollars to cover yourself in the short term as well.
These are the most common benefits, but your employer may also offer legal assistance, discounts on products and services, tuition reimbursement, or even child care. I encourage you to look into these lesser known perks as well. You could be missing out on some great savings!
While this was not meant to be a full lesson on the ins and outs of employer benefits, hopefully now you have a general idea of what is offered, how each works, and why your elections are important. Take the time to review your benefits annually. Something has probably changed you may not be aware of and without a qualifying status change, you are stuck with your elections for the entire year.