Open Enrollment (the easy version)
Employees spend an average of 16 minutes on open enrollment. To put that in context, major financial decisions are made in about the same time it takes to get an oil change. Either people clearly understand their options and can make quick choices or, open enrollment can be confusing and they want to finish as soon as possible. I think it’s the latter.
To make your open enrollment process a little easier, here are some tips on where to focus and how to go about the process. Remember, these are GENERAL suggestions and not advice — you should research your own options before making your selections.
Do something: Open enrollment is once a year and you can’t change many of the options throughout the year (unless you get married, have a baby or have another ‘qualifying event’). If you do nothing, some of your current coverage will continue, some won’t. Don’t take the risk, just complete the process.
Do it over time: You have a few weeks so use the time to your advantage. Pick a topic each day, do the research, make a choice. Don’t try to do this all in one sitting or you will go crazy or simply click options to get it over with.
Do it together: Open enrollment asks you to think about major family decisions — health, life, disability, etc. Your spouse/domestic partner should play a role in the process.
Insurance through your company is usually affordable. The cost of not being insured could be very high. Because of these two factors, I believe you should get a little more insurance than you need during open enrollment. Most sections (health, life, dental, vision, etc.) follow a “Good, Better, and Best” approach. I suggest you calculate how much you need and select the next higher option.
Simply put: it’s easier to reduce your current spending by $20–30/month to cover premiums than deal with a $5,000 — $10,000 uninsured liability in the future.
OPEN ENROLLMENT OPTIONS
Every company has a different plan and it’s impossible to give suggestions on each plan and option. Instead, I hope the following gives you a framework and better understanding of the various choices so you can make an informed decision.
Select Saver, Choice Plus, Basic Plus, Kind of Good, Next Gen, Medical Choice Plus Star. What do these all have in common? They are names of health insurance options that make no sense. I teach personal finance and I still have a hard time understanding all the different health insurance choices. It’s frustrating and I feel your pain.
So how do you make it less painful? Focus on what’s important. I would encourage you to focus on the following:
- Premium — how much you pay (generally per paycheck or month).
- Deductible — how much you pay before the insurance starts paying (per person). Some companies will have a program where they pay first, then deductible, then coinsurance.
- Co-insurance — after you’ve paid your deductible, you split future costs with the insurance company until you reach your out-of-pocket maximum (generally 80% them, 20% you).
- Out-of-Pocket Max — the most you will need to pay in a calendar year. If you have a family, each person has a max.
- Prescription Drug Benefit — tells you which types of drugs they cover.
- Extra Benefits — companies are moving to high deductible plans and giving you some money to offset your costs. They generally offer extra money for selecting certain types of plans or completing physicals / screens.
Build a table with your options across the top (each type of Health Insurance you can choose) and start filling in the data.
Once you’ve developed the table, it’s time to run scenarios. It’s much easier to understand the financial differences of each plan if you see them in action. Create 3 health scenarios for your family:
- Scenario A –Everything stays the same as it has been this past year. It’s the status quo. If you have chronic issues or ongoing medications, it’s part of this scenario.
- Scenario B — Minor health issues arise during the year (maybe a short hospital stay or outpatient procedure) — Broke arm, flu, outpatient surgery, etc.
- Scenario C — Major health issues arise during the year (extended hospital stay) — Cancer, Heart issues, etc.
Run the numbers: For each scenario, determine how much you would pay under each plan. You don’t need to find all the costs — just make some low, medium, high guesses.
Choose: Based on your answers, decide which plan makes the most sense for you and your family. If you’re healthy and have adequate savings, you may be OK with a higher out-of-pocket max. If you’ve had issues, you may prefer higher premiums and lower long term costs.
Keep in mind, the more you can predict your costs, the better you can manage your financial health.
A few parting shots on health insurance.
- Most plans cover 100% of preventative care. Get your physical.
- Insurance companies are smart and profitable. Don’t think you can outsmart them by selecting a certain plan. All plans have tradeoffs between premiums, deductibles and out-of-pocket maximums.
- In network vs. out of network makes a big difference. Use in-network whenever possible.
- Insurance only covers part of the expenses. Make sure your finances are in order to cover the rest.
HSA, FSA, DCRA, or any pretax accounts
Paying with pretax money is better than after tax. Trust me, it makes financial sense. Health savings accounts (HSA), Flexible Spending accounts (FSA), Dependent Care reimbursement accounts (DCRA), etc. give you the option to pay for expenses with pretax dollars. You will SAVE MONEY by using these accounts but keep in mind the following:
- It comes out of your check: These accounts pull from your check to set aside money for specific uses — such as health costs, dependent care expenses, transportation, etc. If you have the expenses anyway, it’s good to have the money taken out pre-tax. Still, you will need to budget accordingly.
- Estimates are critical: You will need to estimate how much you spend on specific expenses during the year (e.g. health, dependent care, etc.) to calculate how much you should put in this account.
- Beware of ‘use it or lose it’: Some of these accounts have a ‘use it or lose it policy’. They take money from your check each month and, if you don’t use it by the end of the year (or grace period), you lose it. To be safe, only use these accounts for expenses you can reasonably estimate.
Overall, if you take your time, you can save by using pretax accounts. I like them.
Both dental and vision generally follow a ‘good, better, best’ approach. In most cases, going with the best costs $5–15/month more and I think it’s worth it (especially if you have children).
Most employers will offer you some level of basic life insurance (usually $50,000 or 1x your salary). Then, they give you the option to get more life insurance (generally 1–4x your salary). The cost for the extra insurance depends on (1) how much you get and (2) your age. Here is what I suggest:
- Figure out how much you need. If you’re single with no dependents, you don’t need much. If you have a family and are the only earner, you need more. The easiest way to know ‘how much’ is to assume you passed and estimate the costs to maintain your lifestyle and cover your responsibilities.
- Calculate how much it will cost. Usually, the insurance is cheap — $15–30/month for the maximum you can get through your employer.
- Pick one and add beneficiaries (the person(s) who gets the money if you die).
- If you need more than you can get from your employer or add a term policy from a private source.
You will also need to consider insurance for your spouse/domestic partner and child. These policies are also fairly cheap so it doesn’t hurt. Follow the same steps above and also consider what your spouse/domestic partner gets through their employer.
Remember, first focus on how much life insurance you need. Then think about where you get it from.
Disability insurance is known as ‘income replacement’ insurance. If you can’t work due to disability, the insurance will pay you a certain % of what you made. Here’s how it works:
- Short term disability covers less than 180 days.
- Long term disability kicks in after short term and lasts 3–5 years (or more in some instances).
- Most employers will give you some level of short and long term disability (you don’t need to pay) — it’s usually 50–60% of pay.
- You can elect to increase the amount you get paid if you’re disabled (e.g., get 70–80% of pay).
- You can also elect to have your benefit ‘taxed’ today so, if you ever get disability pay, it’s tax free money.
Disability insurance is a great benefit but can be confusing. First, figure out how you would manage your finances (pay the bills) if you became disabled. Then, determine how much disability insurance is appropriate. Here again, you can ‘buy-up’ through your employer or get a private plan. Either way, make sure you’re covered.
You can enroll in the retirement plan anytime throughout the year but I think open enrollment is a good time to do the following:
- Contribute up to the match: If your employer matches 5%, you should put in at least 5%. It’s free money.
- Check your investments allocations: Make sure your investments match how risky or conservative you want to be. The general rule of thumb is [your age = % in safe stuff]. “Safe stuff” includes bond funds, treasuries, money market accounts, and cash. Riskier stuff includes various types of stock funds (equity funds).
- Review your beneficiary: Who gets the money if you die? You may want to look and make sure it’s not an ex-spouse.
So, now what?
Well, the fact that you’ve read this blog is a step in the right direction. As I mentioned in the beginning, focus on one section of the open enrollment process each day (health insurance may take a few days). Make some initial choices and then go back and review before the deadline. If you have questions, use your HR department or call the benefit provider. Remember, this is your life and your financial health — it deserves a little more time than an oil change!
Note: If you’re at a company that offers SmartPath coaching, schedule time with a coach to review your elections.