Open enrollment season for employee benefits is upon us. This is an important time of year because once your options are selected, they cannot be changed unless you meet a qualifying exception - marriage, birth, adoption, divorce, or death.
During open enrollment season, employees are able to update benefit elections that take place for the upcoming year. Possible updates to existing benefits include health, life, disability, vision, and dental insurance. Let’s define the basics to help you make the right decisions this season.
Employers typically offer one of two options for health insurance coverage to employees.
Health Maintenance Organization (HMO)
If you are interested in lower premiums and out-of-pocket costs for co-pays and deductibles this may be your best option. HMOs are a closed network, meaning your selection of health care providers are limited - so you may not be able to see a specific physician or doctor for care.
Preferred Private Organization (PPO)
The PPO option is flexible when compared to the previously mentioned HMO. PPOs provide you with a list of preferred providers in-network. With that said, you are still able to see a care provider outside of your network - most likely for a higher out-of-pocket cost. PPOs typically have a higher deductible associated with the plan, but for this cost, you are receiving flexibility in care options.
Most employers offer life insurance in amounts of $25,000, $50,000, or an employee’s salary. All employees should accept this coverage because it is free. Employers also offer the option to buy supplemental life insurance whether it is 2x, 3x, or 4x an employee’s salary. Employees should consider life insurance provided by their employers because it is often more affordable than any other life insurance on the open market. Group life insurance with an employer is also beneficial if you have any preexisting health conditions, or if you develop a health condition because the cost to be insured is likely less than going through a private insurance provider outside of your employer.
It is important to note that you may not be able to receive adequate life insurance coverage through your employer. Remember that the death benefit of your life insurance should take your human capital into consideration (current and future earnings) as well as the value you provide to your family domestically (cooking, picking up kids, cleaning, etc). In that case, you may need to purchase another policy, i.e. term insurance to cover the gap. Having enough coverage in place minimizes potential hardships for your beneficiaries in the worst-case scenario.
Most employers offering disability insurance cover all or a portion of the premium. Employees should elect coverage because it is important to protect your greatest earnings potential - you. Employers offering disability insurance cover two types - long-term disability and short-term disability.
Long Term Disability
Long-term disability covers 40-60% of your base salary after an elimination period. The elimination period is the waiting time from when your disability occurs and when the coverage begins. A common time frame for this period is 90 days. Disability benefits are paid out until the disability is no longer present or after a specified time period (years).
Short Term Disability
Short-term disability covers 60-70% of your base salary after the elimination period. The elimination period is typically shorter compared to long-term disability. Disability benefits are paid out for a short time period up to one year.
What happens if you’re a surgeon, burdened with student debt, and can no longer operate? How do you replace your income for not only you but your spouse and family? As with life insurance, it is important to note that you still may not have adequate disability insurance coverage, even through your employer. Your disability benefit should represent your current and future earnings potential. If a disability occurred, you want to make sure you are covered for potentially the remainder of your career.
Most adults use a form of vision correction. As your employer offers vision insurance it is important to consider whether or not you need vision care based on your personal situation. Vision insurance covers routine eye exams and discounts on eyewear purchases.
Dental insurance is similar to health insurance in that there are two options, PPOs and HMOs. Employers typically pay for most or all of the employee’s premium. Dental plans can provide 100% coverage for preventive care such as cleanings. Basic and major procedures such as fillings, extractions, crowns, and root canals are covered up to a certain percentage.
Most employers offer their employees a retirement savings plan. The most common plan provided is a 401(k). Another popular retirement savings plan is a 403(b) provided specifically to members of certain tax-exempt organizations, employees of public schools, and certain ministers. Employees should take advantage of employer-provided accounts in order to start planning for the long term. Employees must elect a percentage of their salary to contribute to the plan. Employers will match up to a certain percentage of the employee’s salary as well. Depending on your personal situation, you will need to determine the appropriate percentage to contribute - at a minimum it should be whatever your employer is matching.
Another very important election during benefits season is establishing a tax-advantaged savings account. Employers provide two options - Health Savings Account (HSA) or Flexible Spending Account (FSA).
Health Savings Account
HSAs can only be established in coordination with a high deductible health care plan. Self-employed individuals are eligible to establish HSAs as long as they are enrolled in a high deductible health care plan. HSAs offer triple tax savings. Contributions into an HSA are tax-deductible, interest or earnings are tax-free, and withdrawals used for medical expenses are tax-free. HSAs cover medical expenses ranging from doctor visits, eye wear, and prescriptions.
Flexible Spending Account
FSAs are not eligible for self-employed individuals. Employees must direct the employers on the annual amount they want to contribute (deducted from payroll). Contributions are tax-free. The main difference between an FSA and HSA is that one must spend the entire balance of the FSA by the end of the calendar year where as an unused HSA balance can roll over into the following year.
Open enrollment occurs once a year unless a qualifying event occurs as previously noted. It is an important time to review your and your spouse’s benefits to determine if a change in coverage is necessary. Benefits can change year over year so it is vital to not overlook you and your spouse’s plan options. Also, use the open enrollment period to check other important items such as paid sick leave and vacation time. Start to note how much vacation time you have remaining, and please use it.
Open enrollment time can seem overwhelming. It is common for us to select what we have done in the past. We advise that you should always take into consideration new life events and plan for what life looks like in the year ahead. Life happens, so let’s make sure your benefits are properly in place.
Disclaimer: This article is for informational purposes only and is not a recommendation of Fyooz Financial Planning, Natalie Slagle CFP®, or Daniel Slagle CFP®. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. Therefore, it should not be assumed that future performance of any specific security, investment product or investment strategy referenced in the article, either directly or indirectly, will be profitable or equal to the corresponding indicated performance level(s). No portion of the article shall be construed as a solicitation to buy or sell any specific security or investment product or to engage in any particular investment or financial planning strategy. Any reference to a market index is included for illustrative purposes only, as it is not possible to directly invest in an index. Indices are unmanaged, hypothetical vehicles that serve as market indicators and do not account for the deduction of management fees or transaction costs generally associated with investable products, which otherwise have the effect of reducing the performance of an actual investment portfolio.