money Open enrollment 2020: How to choose the best employer benefits
Every fall, companies hold their annual open enrollment, a period when you can change health care plans, add other insurance coverage, and sign up for additional benefits your employer offers.
You may be tempted to simply choose last year’s options to save time, which is what the vast majority of Americans do. But that doesn’t necessarily help your wallet, especially if your life circumstances have changed.
The problem is you’re largely stuck with your selections until next year’s open enrollment even if you discover they’re poor choices. So taking the time now – meaning more than the 32 minutes on average that employees devote to the task – could save you hundreds, even thousands, of dollars in 2020.
Here’s how to get through open enrollment as painlessly and efficiently as possible.
Open enrollment: Health insurance
Let’s start with the biggest decision: health insurance. Often, employers will provide more than one plan to choose from: a high-deductible one and a low-deductible one.
“Which one is right for you is going to depend on several factors, including family size, health, and the amount of savings you have for emergencies,” said Jessica Goedtel, assistant vice president at Valley National Financial Advisors in Bethlehem, Pennsylvania.
If your company offers just one plan, your work is still not done. Compare your employer’s option with what you could get on your own through the federal or state marketplace.
Married couples also should compare plans offered by their respective employers to see if it saves them money for both to be covered under one plan or covered by separate ones. Similarly, workers under 26 should look at their employer benefits versus their parent's health plans, which they can be covered by.
Here’s a breakdown of the two types of plans you may encounter, along with key insurance terms you need to understand first to effectively compare.
Premium: The amount you pay monthly for your health insurance. Your employer often covers a portion of the total premium.
Deductible: The amount you must pay first for your health expenses before your insurance coverage kicks in.
Out-of-pocket limit: The maximum amount you have to pay yourself for your health expenses in a year.
Copayment: The set amount you pay to visit a doctor, specialist or the emergency room.
Coinsurance: This is how you and your insurer split the costs to pay for certain medical expenses. For instance, you may be required to cover 20% of an expense, while your insurer covers the rest.
Low-deductible plan
While these plans come with higher monthly premiums, your low deductible means you pay less of your own money upfront before your insurer starts kicking in.
Often, you can pair this plan with a healthcare flexible spending account, or FSA, if your employer offers one. You contribute pre-tax dollars to this account, and funds can be used for copays and other qualified medical expenses during the year. There’s a potential drawback: If you don’t use all the funds by year-end, you lose those dollars.
Who should choose a low-deductible plan? Those with chronic conditions that require many doctor visits and are at high risk for complications should opt for a low-deductible plan. If you’re planning surgery or other medical procedure next year, you may also want to go with a low-deductible plan. Ditto if you’re planning to get pregnant.
High-deductible plan
These plans, or HDHP for short, have lower monthly premiums, so you get a bigger paycheck every month. But you have to pay more money upfront before you reach the higher deductible and insurance coverage kicks in.
For 2020, a health care plan is considered a high-deductible one if it deductible is at least $1,400 for an individual and $2,800 for a family.
An HDHP can come with a health savings account, or HSA, that can offset medical costs during the year before you reach the deductible. Like an FSA, these are funded with pre-tax dollars, lowering your taxable income. Unlike an FSA, funds left over at the end of the year roll over to the next year. In some cases, your employer will contribute to your HSA.
HSAs are also a favorite tool of financial advisors. Unused funds can be invested and grow tax-free. Withdrawals for qualified medical expenses are also tax-free. Once you reach 65, your HSA is practically another retirement account. Withdrawals are tax-free for any purpose.
Who should choose an HDHP? If you’re healthy and don’t have high medical costs or a chronic condition, you should consider one.
Pro tip: Direct the money you save on the monthly premiums to increasing your retirement contributions, said Eric Walters, managing partner of Silver Crest Wealth Planning in Greenwood Village, Colorado.
Open enrollment: Other insurance
Sorry, you’re not done yet once you’ve got your health insurance in place. Likely your employer offers a suite of other insurance options to consider. Here’s a rundown of the more popular ones.
Vision and dental
Go over all of your options. In some cases, one or both of these may be bundled with your general health plan. Estimate how much you spend each year on annual eye exams, dental cleanings, glasses and contacts and check that against the covered expenses. If you have a favorite dentist or eye doctor, make sure they’re within the plan’s network of providers, if there’s one.
Life insurance
Many employers provide a basic life insurance policy that covers one year’s salary, often at no cost to you. They also may offer supplemental coverage that you must pay extra for.
If you’re married and/or have a family, life insurance is a must-have, said Edward Snyder, a certified financial planner with Oak Tree Advisors in Carmel, Indiana.
“No one likes to think about this,” he said. “But if either spouse is gone, life insurance replaces the earnings of that spouse.”
Pro tip: One year’s worth of salary is not enough life insurance for most families. Does that mean you should you sign up for the supplemental coverage your employer offers? That depends on your health.
If you have no medical conditions, you may find better pricing, coverage, and flexibility when shopping on your own. But it may be the best deal for those in poorer health because you typically don’t have to undergo a comprehensive medical underwriting process to qualify for coverage through your employer.
“This makes is a no-brainer if you smoke or have any chronic or severe conditions that would make individual insurance costly or unavailable to you,” said Jon Ulin, managing principal of Ulin & Co. Wealth Management in Boca Raton, Florida.
Disability
This insurance replaces a percentage of your income if you become disabled and can’t work, and comes highly recommended by financial planners.
“We generally recommend all disability insurance that's offered,” said Glenn Downing, principal of CameronDowning, a financial planning firm in Miami. “Cheapest way to obtain it.”
Focus on long-term policies, especially if you already have at least a three-month savings cushion. Many employers also provide short-term disability at no cost to you, and that’s commonly used to replace a portion of your wages when you’re on maternity leave.
Pro tip: If your employer pays the premiums, check to see if you can include them as part of your wages for the year, said Aaron Graham, a certified financial planner at Abacus Planning Group in Columbia, South Carolina. That way, you’ll get those benefits tax-free, he said.
Skip these
Your employer may offer other, more specific insurances, such as death and dismemberment, cancer, critical illness, hospital indemnity and accident. Unless free, waive these because they typically cover you only in very specific cases and don’t pay out much.
Open enrollment: Other benefits
Your company may offer other extras like legal plan services, funeral benefits and pet insurance that largely should be considered on a case-by-case basis. First, make sure you will actually use the services. Second, if you have to pay extra for it, shop around first. You may get a better price in the open market.
There are two other benefits, though, that are definitely worth considering and could help you save significant dollars during the year.
Commuter benefits
Take advantage of any benefit that allows you to use pre-tax dollars to pay for parking, tolls, public transportation or bikeshare programs for your commute to work. Using pre-tax money is like getting a discount of up to 30% or more on costs you’d pay for anyway.
Dependent care flexible spending account (FSA)
You can stash $5,000 – pre-tax – into these accounts each year to cover childcare or adult-care expenses for your children or adult dependents.
That’s a savings of $1,500, if you’re in the effective income tax rate of 30%, said Robert Greenman, partner at Vista Capital Partners, a financial planning firm in Portland, Oregon.
“Childcare costs are a financial burden,” he said. “So anything that can be done to ease the pain of this non-discretionary component of living expenses should be utilized.”
Changing open enrollment selections
In most cases, what you choose during open enrollment stays with you until next year’s period begins. But certain qualifying life events trigger a special enrollment period and allow you to make changes any time during the year. They include:
Family: Marriage, divorce, birth or adoption of child, and death of a spouse or parent whose coverage you’re on.
Turning 26: When you turn 26, you no longer qualify to be on your parents’ health insurance plan.
Job: If you or your spouse start a new job, lose a job or retire, you may qualify for a special enrollment period.
Location: If you move out of state or out of the existing coverage area, you may qualify for a special enrollment period.
Janna is an editor for Yahoo Finance. Follow her on Twitter @JannaHerron.
Read more:
Retirement expert: ‘40% of folks are going to literally run out of money’
Best countries to retire? U.S. doesn't make top 10, study says
Read the latest financial and business news from Yahoo Finance
Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, SmartNews, LinkedIn,YouTube, and reddit.
