Make the Most of Open Enrollment

Posted by Jill on November 2, 2009

I opened the mailbox on Friday and found a thick envelope from my employer: the Guide to Open Enrollment. During the next two weeks, employees of my company can renew our benefits selections or choose new ones for next year.

If you find yourself in the same situation, it’s important that you take advantage of it. Barring a major life event like a marriage, birth, or death, this will be the only chance you have to elect benefits for your family for next year.

Depending on your employer and benefit providers, your benefits from last year may carry over if you skip open enrollment, but also could expire and leave you without benefits in the new year. Remember that different options are appropriate for different situations – that’s why you have choices!

Benefit Options

Your company may provide you with any or all of the following options: medical insurance, flexible spending accounts for dependent care, health care, or commuter spending, a health savings account, long- or short-term disability insurance, life insurance, dental or vision insurance, and more.

You also may have the option of a “cafeteria plan” where your employer gives you a certain amount of money to use to pick from various benefit options. If you haven’t used them in the past, watch for these options for next year:

  • High Deductible Health Plans provide cheaper premiums in exchange for a higher deductible – you are responsible for a certain dollar amount of medical costs before insurance kicks in. The deductible may not apply for certain expenses — annual physicals or other “wellness” visits and routine screenings are often covered at 100%
  • Health Savings Accounts (HSAs) allow you to save tax-free (up to certain limits) for qualified health care expenses. HSAs are only allowed for employees with high deductible health plans. They allow you to save for your portion of medical payments. As an added incentive, your employer may contribute part or all of your deductible to an HSA for you. Contributions roll over from year to year, and can be accessed for medical expenses at any time or after 59 ½ for any reason. Other withdrawals before 59 ½ will result in taxation plus a penalty.
  • Flexible Spending Accounts (FSAs) allow you to save tax-free (up to certain limits) for dependent care expenses (such as child or elderly care), commuter spending (parking or public transportation), and medical expenses under any type of medical plan besides a high deductible plan. Funds in these accounts expire at the end of each year or a few months after, so be sure to only contribute the amount you will actually use! That said, these accounts are a great way to save on taxes.
  • Disability Insurance replaces a certain percentage of your income if a disability prevents you from working. Disability is more likely than untimely death, but more people carry life insurance than disability insurance. If your employer offers short or long term policies and your family is dependent on your income, consider electing this benefit next year.

5 Steps to Picking Benefits

The five steps below will guide you through the open enrollment process and help you choose cost-effective benefits for you and your family.

  1. Consider your benefit needs: Your biggest benefit election will focus around medical insurance. What are the major medical needs of your family next year? Are you anticipating any major surgeries, a pregnancy, or new prescriptions? Has your family grown, or has a child graduated from college and dropped off of your insurance? For benefits besides medical insurance, consider how your family needs differ from last year – a new child/stay-at-home parent might mean a greater need for disability or life insurance. A medical condition might necessitate greater savings in an HSA or FSA.  A teenage child in need of braces might steer you toward dental insurance even if you have not had it in the past.
  2. Review current benefit selections: What benefits did you elect last year, and how have they worked for you? Are you going to end up losing money in an FSA, or struggling to spend it? Did you wish you had set aside more for commuter or dependent care expenses? Did your dental premiums exceed what dental care would have cost you?
  3. Understand your options: If your employer sent an enrollment guide, read it cover to cover and then read it again. Understand every option completely – if you have questions, contact HR or the benefit provider. Pay special attention to benefits that would be a change for you, specifically those outlined above – just because you haven’t used them in the past doesn’t mean they don’t make sense for you. If you and a spouse both have benefit options, understand all of the choices through both employers – some might differ in coverage, cost, or both.
  4. Break out the calculator: First, figure out what medical plan makes sense for you – calculate your estimated medical costs under multiple plans, including premiums, co-payments, prescription costs, and payments to meet your deductible. A higher premium might make sense if it staves off out-of-pocket expenses later. If your out-of-pocket expenses are generally low, a high-deductible plan probably makes sense. Next, decide how much to contribute to your HSA and/or any FSAs. Remember to figure in any tax breaks when calculating how those may affect you. If you are also considering benefits from your spouse’s employer, run through the same scenario. Where possible, pick and choose the benefits from each employer that provide the best coverage for the lowest cost. Next, add up the cost of all of your benefit elections and HSA/FSA contributions, and make sure you can still afford other expenses. If you have to, go back and reevaluate lower-cost options.  
  5. Take action: Use your employer’s process to select your benefits for next year. If any circumstances change during the open-enrollment period, you can usually make changes before open enrollment ends.




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Comments to Make the Most of Open Enrollment

  1. Not enough is said about the flexible spending benefit. I can never believe how few people take advantage. Most companies offer it and relatively few do it.

    The most common thing you hear is “well, if I don’t use it I’ll lose it.” So be conservative! People fail to realize how many items they can put against it….most over the counter meds (tylenol, advil even icy-hot), any doctor’s co-pay, medication co-pay (yeah, birth-control too), eye exams, & not to mention if any type of emergency at all pops up and you have to eat into deductibles.

    My wife got lasek last year, obviously not covered by our health insurance, but Flex spending reimbursed the whole thing.

    Last point,…if you consider the tax savings, you come out ahead as long as you come near the amount you deducted. For example, if you save 25% in taxes, and put $100 in your FSA, as long as over the course of the year you can get reimbursed for $75 you break even, everything else is gravy.

    Howard

  2. Wow, your post makes me wonder if we don’t work for the same company.

    Jeff

  3. @Howard You make excellent points. FSAs are just what their name implies – flexible! They can be used for so many things, and most even give a debit card option now so that you don’t have to deal with reimbursements. They also give you large tax benefits and ensure that the money is already set aside when you do incur medical expenses. HSAs are even better because the funds don’t expire.

    @Jeff Maybe, but I think all these benefits are pretty common, especially in large companies.

    Jill

  4. Good article. I think people should really consider all their options. I know many people do not like the hassel of dealing with a flex-spending account, but it is well worth the trouble. Basically you are getting your childcare or health related expenses (like deductibles and out of pocket) at a 30% discount. All you have to do is save the receipts and fill out a simple form and fax it in.

    Even if you have a minimum amount of expenses, it is worth your time to do this – because every dollar you save is an extra dollar in your pocket.

    basicmoneytips

  5. I love this timely article! I just published one on Sunday called Finance 101: Understanding Your Flexible Savings Account (FSA). I wrote that one because SO many people in my office are completely clueless about FSA’s. I thought it was easier to understand than the 401K. Personally, I think everyone should be defaulted into something like $500 annually in the FSA instead of $0.

    Cheapskate Sandy

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