Open Enrollment is the Time to Optimize your Employee Benefits
Open Enrollment... There is a lot to understand about all the options for Employee benefits. I want to help you understand all the things you're looking at.
This article is intended for those still working as an employee. If you are retired or a business owner, I’ll post other articles for you.
In this article:
Your employee benefits play a vital role in protecting you and your family from negative financial outcomes if something bad happens to you or your family. Your employee benefits may also enhance your lifestyle by providing you with discounts or reimbursements for valuable services you may already use. Open Enrollment is the time to review how your options fit into your overall financial picture and whether you should add or subtract benefits from your plan based on your needs.
Open enrollment for most companies will be beginning soon, if it hasn’t already started for you, so that your new benefits can begin January 1st, 2022. You will be able to choose between a variety of benefits your employer offers. The main three categories you will elect are Health Insurance, Life Insurance, and Disability Insurance. Additionally, you may have extra benefits that your employer may offer.
Health Insurance
Larger employers typically offer more than one option for health insurance while smaller employers may offer only one health insurance option. Either way, you should be aware of the benefits, coverage, and costs of your plan. During Open Enrollment you can make changes to any choices you previously made.
If you have more than one plan, you’ll likely have two flavors:
- Higher Premium, Lower Out of Pocket Costs – In general, if you expect to use your health insurance a lot throughout the year (maybe you have accident prone kids or you know you will have a surgery next year), this might be the better option as your total out of pocket maximum is lower.
- Lower Premium, Higher Out of Pocket Costs – In general, if you don’t expect to use your coverage for more than routine appointments, this may be the better option as the lower premium on an annual basis will help you save money in the long run.
What does HMO and PPO stand for?
HMO stands for Health Maintenance Organization and will generally have a more restrictive network of doctors and specialists you can go to. The reason for this type of plan is so the insurance company can have more control over the costs of coverage making this plan cheaper.
PPO stands for Preferred Provider Organization and will generally have a broader network of doctors and specialists with more flexibility for you to choose which doctor to go to. With the added flexibility, the PPO plan is generally more expensive.
What is an HSA and how does it differ from an FSA?
A Health Savings Account (HSA) is a powerful tool you can use to cover your current medical expenses and so much more. Access to this account is typically paired with the Lower Premium, Higher Out of Pocket option. Funds saved into an HSA are not taxable to you, and can remain in the HSA for future use if you do not use them.
A Flexible Savings Account (FSA) should be used for regular annual medical expenses as this is mostly a use it or lose it account. That’s right, if you put money into this account and don’t use it before the year is up, you may lose your own money
Which Health Insurance plan should you choose?
To choose the best plan for you, you’ll need to consider your budget, expected health events during the year, current drugs, desired physicians in or out of network, emergency fund, and travel aspirations.
Definitions:
Premium: The amount you pay for the privilege of access to insurance.
Out of Pocket: All of the money you have to pay if you have a health event. Deductibles, Co-Insurance, Co-Pays are all part of this. Note that this does not include your premiums.
Deductible: What you must pay before insurance begins to pay. The higher the deductible, the more you must pay before insurance picks up a dime. One caveat are the co-pay items that are pre-arranged by your insurance.
Co-Insurance: After you meet your deductible and insurance finally begins pay out, co-insurance specifies how the bills are split between you and them until you reach your maximum out of pocket. For example, if it says 20% and you have a $1,000 medical bill, you pay $200 and the insurance company pays $800.
Co-Pay: A set dollar amount you pay for specific procedures or drugs. For example, it might say that you will pay $20 for each visit to your primary care doctor. Insurance will pay the rest regardless of where you are in meeting your deductible.
Maximum Out of Pocket: The total out of pocket costs you have could potentially pay before insurance pays 100% of future medical bills for the year. Again, this does not include the premiums you pay.
Life insurance
What type of life insurance are you offered from your employer?
You will typically have 2 types of life insurance offered though high-income employees may have additional options. Know your options, so you know if you should make changes during open enrollment.
Group Life Insurance
Group Life Insurance is likely what you think of when you think of life insurance. If you die, whatever the cause, it’ll pay out a death benefit. There are two types of Group Life insurance:
- Basic Life is typically $50,000 or one times your salary. This may be paid by the employer. Basic Life does not go through underwriting.
- Supplemental Life insurance is an elective offering that is above and beyond your Basic Life. This may be elected as a dollar value or a multiple of your salary. You may be able to get several hundred thousand dollars of coverage without going through underwriting.
Group Accidental Death and Dismemberment (AD&D)
Group AD&D is life insurance with a twist. It will only pay out under certain circumstances. Basically, if you die of unnatural causes (accidents) or you become dismembered, it’ll pay a benefit. However, if you die of natural causes (diseases), it will not pay.
Because of these special circumstances, Group AD&D should be relied upon with caution as it might not pay out when your family is expecting it to.
Considerations
The first thing you need to know before you enroll is how much life insurance you actually need. The calculation should factor in providing for your loved ones by replacing your income for lifestyle expenses, paying off debts, and creating a retirement or education fund. Everyone’s situation is different.
There are a number of calculators out there ranging from basic to advanced. A qualified financial professional can help you identify your true life insurance need based on your unique situation.
Next, you will want to consider whether buying additional group life insurance is the most appropriate way to fill your life insurance need. Employer provided life insurance typically is not portable which means you lose your coverage when your are no longer employed there. Just because you are unemployed, hopefully temporarily, doesn’t mean your life insurance need goes away. Depending on your health and age, you may be able to get better pricing through an individual policy due to your employers group policy ratings. Finally, through group life insurance, your employer controls the coverage, not you.
Special Note:
While on the subject of life insurance, double check your beneficiaries listed on the policy and make updates as necessary.
Definitions
Elimination Period:
Think of this like a time deductible. It is the amount of time you have to be disabled before the policy will begin to pay benefits. Generally, this will be expressed in days such as 7 days which means you have to be disabled for 7 days before the policy will begin to pay.
Disability insurance
- Short-Term Disability generally provides coverage for no more than 1 year with the most common periods are 90 to 180 days. After the elimination period, if any, the policy will begin to pay a benefit to you if you meet the insurance companies’ criteria of disability. The level of benefit can vary widely on Short-Term Disability but are generally fairly generous.
- Long-Term Disability generally picks up where Short-Term Disability ends. Group long-term disability policies typically will go to age 65 or longer. The level of benefit is generally expressed as a percentage of your income such as 50% or 60% of your income.
Considerations:
Disability insurance is important because it protects your ability to earn income over your lifetime which for most people is their most valuable asset. There are many considerations to what is appropriate for disability coverage such as:
How many years until retirement and how much you have saved already?
If you are close to retirement and have already saved sufficiently, disability insurance is less important.
What is your current income level and composition?
The higher your income, the more you need to know exactly how much of your income it covers. Just because your policy says it covers 60% of your income doesn’t mean it covers 60% of what you consider your income to be. Many group policies also have caps on how much benefit they will pay.
What are the definitions of disability the policy uses and at what level?
Is the policy going to use a strict or broad definition of disability and does it change throughout your benefit period? How does other income impact your disability benefits?
If your employer doesn’t offer disability coverage, it doesn’t mean you don’t need it.
Other Benefits to Consider during Open Enrollment
Gym memberships:
If your employer offers a discounted gym membership benefit, seriously consider taking advantage of it. Exercising increases your energy, focus, and overall health making you less likely to have health events in the future that cost money.
Prepaid legal plans:
You may be able to elect a pre-paid legal plan which allows you to access attorneys at a discounted rate. This can be a cost-effective way to get your estate plans created or updated. Pre-committing to this cost is a good motivator to getting that task checked off the list.
Commuting:
Some employers offer a benefit for certain commuting expenses that allows you to pay this cost pre-tax.
Accident insurance:
Accident insurance is a special type of insurance that provides a fixed benefit if you or your family has a certain medical event. For example, it might pay you $1,500 if you have a broken arm or $200 if you need stitches.
Pet insurance:
A newer benefit, some employers are beginning to offer pet insurance to offset costly veterinarian bills. If you have lots of pets, this could pay off.
Identity theft insurance:
Your employer may provide discounted access to Identity Theft Insurance. Keep in mind, this type of insurance does not prevent identity theft. It only offsets the financial impact of identity theft.
Other Benefits:
Many companies may also offer a discount network for travel, purchasing electronics, purchasing tickets to concerts, subscriptions, and more.
Final Tip:
While you’re thinking about all of these benefits, it’s good to review your retirement savings as well to ensure you are saving the right amount into the right account.