Open Enrollment 2020: Maximize Your Benefits
By Wendy Turk
It is that time of year—the leaves are changing color (sort of, in Los Angeles), the kids are back in school, and there is pumpkin spice in absolutely everything! That also means its Open Enrollment season at work, which means time for either blindly clicking on options or asking lots of questions to understand what everything means. That made me think, why not make a quick list to help explain what each item is and whether you should opt-in or out or somewhere in between.
Health insurance is generally the biggest benefit most people are enrolling in during open enrollment. With health costs ever-increasing, and employees paying a larger share for their healthcare, what are some ways to maximize your employers’ offerings? The main questions to ask are: How often do you need the doctor? Do you see specialists? Do you take medication regularly? Are you in a position to afford a medical emergency?
If you typically have low medical expenses—may be one annual well-visit and a couple of additional doctor’s visits per year—a high deductible health plan (HDHP) may be a good option for you. An HDHP features higher annual deductibles (for 2020, a minimum of $1,400 for individual and $2,800 for family coverage) than traditional health plans. With the exception of preventive care, covered employees must meet the annual deductible before the plan pays benefits. HDHPs, however, may have significantly lower premiums than other traditional plans.
You’ll also qualify to contribute to a Health Savings Account (HSA). HSAs may be opened by employees who enroll in a high-deductible health plan. You can open one even if your employer doesn’t offer an HSA option within their benefits. Employees can put money in an HSA up to an annual limit set by the government (for 2021, the limit is $3,600 for self-only coverage and $7,200 for family coverage), using pre-tax dollars. Employers may also contribute funds to these accounts within the prescribed limit. HSA funds may be used, tax-free, to pay for qualified medical expenses whether or not the deductible has been met. HSAs are individually owned and the account remains with an employee after employment ends so that they are not use-it-or-lose-it plans.
Flexible Spending Accounts (FSA) are another employee benefit offering that can be used for health care costs, in addition to childcare, depending on the benefit offerings. FSAs are tax-deductible and tax-free when used for qualified health and dependent care expenses. Health FSAs can be used for qualified health expenses, much like an HSA, but you don’t need a high-deductible health plan to qualify. There are also dependent-care FSAs, which allow funds to be used for qualified dependent care, such as preschool, daycare, or after-school care. The current limit for the health FSA is $2,750/yr, and $5,000/yr for health and dependent care FSAs. However, FSAs are use-it or lose-it plans, so any funds remaining in the plan at year-end are forfeited. This means you’ll need to estimate your spending needs before electing to use an FSA plan.
If your employer offers Disability Insurance, typically the cost is much cheaper than if you tried to obtain the same insurance on your own. Disability insurance pays part of your income, typically up to 60%, if you can’t work because of an illness or injury. In California, we all pay into short-term disability (less than one year) as a state benefit, but many employers offer additional Long-Term Disability as well. Long term disability benefits typically pay when you’re disabled for more than 6 months to a year, and can extend for several years or more, depending on your coverage.
While many think disability is unlikely, but according to the Social Security Administration, more than one in four 20-year-olds will experience a disability for 90 days or more before they reach age 67. For most people, the ability to work is your greatest asset, and only disability insurance can help protect it.
Many employers offer group life insurance as part of a benefits package as well. This may range from a small amount to several multiples of salary. If you’re offered the option to take several multiples of salary for a couple of dollars per paycheck, this will be the most affordable way to obtain more life insurance. If, however, you need additional coverage (think $1,000,000 or more), your workplace life insurance may not be the best deal. It may be better to look for your life insurance plan not only for affordability but also for portability. A significant thing to note about most employers’ life insurance is that you will likely lose coverage when you leave that employer. Depending on your age and insurance needs, a mixture of workplace insurance, as well as your policy, may keep you best protected.
As always, there are many nuances to employee benefits and open enrollment that may apply to some employers, but not all. If you have specific questions, ask your financial planner: that is what we’re here for!
Wendy Turk is a Financial Advisor of Santa Monica, Calif-based Gerber Kawasaki Inc., an SEC-registered investment firm with approximately $1.3 billion in assets under management as of 06/30/20. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which course of action may be appropriate for you, consult your financial advisor. No strategy assures success or protects against loss. Readers shouldn't buy any investment without doing their research to determine if the investments are suitable for their situation. “All investments involve risk and one should consult a financial advisor before making any investments. Past performance is not indicative of future results.”