Year-end Planning
This is the time of year when most companies hold their open enrollment periods, during which employees decide on their benefits for the next 12 months.
Many people mistakenly assume they don’t need to make changes from their last selections, said Jonathan Gruber, an economics professor at the Massachusetts Institute of Technology.
“But every year, there may be new choices available – as well as changes in your circumstances,” Gruber said. “Take the time to revisit these decisions. The consequences could be very large savings.”
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This is the time of year when most companies hold their open enrollment periods, during which employees decide on their benefits for the next 12 months.
You’ll likely have a window of just a few weeks to review health insurance plans, allocate your savings and review a host of other options, including disability insurance and spending accounts.
Many people mistakenly assume they don’t need to make changes from their selections the year prior, said Jonathan Gruber, an economics professor at the Massachusetts Institute of Technology and former president of the American Society of Health Economists
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“But every year, there may be new choices available – as well as changes in your circumstances,” Gruber said. “Take the time to revisit these decisions.
“The consequences could be very large savings,” he added.
Here are the four key steps to take at your workplace’s open enrollment, according to experts.
Open-enrollment workplace checklist
Health insurance
Savings and spending accounts
Dental and vision plans
Life insurance
Disability insurance
Retirement savings
Beneficiary selection
1. Compare medical, dental and vision plan options
Typically, employees are presented with two medical insurance plan options: one with a higher monthly cost (known as your premium) and a lower deductible (the amount you’ll have to shell out before your employer’s plan kicks in), and another option where it is the other way around, with you paying less each month but required to hit a higher number before your coverage begins.
If you are completely healthy and only go to the doctor, say, once a year for a check-up, you might want to opt for the so-called high-deductible plan with the lower monthly cost. So-called preventative services, like wellness checks and certain immunizations, should be free whether or not you’ve hit your deductible, said Caitlin Donovan, a spokesperson for the National Patient Advocate Foundation.
Gruber said that in many cases, “a high-deductible plan will be a better deal because premiums are so much lower.”
On the other hand, paying a higher premium up front will give you more certainty about your out-of-pocket costs during the year, particularly if you end up needing to visit a hospital, said Jean Abraham, a health economist at the University of Minnesota. If you have an illness, want to visit multiple doctors or try different treatments in 2024, it may be preferable to have a lower deductible you can hit so that you can then take greater advantage of your workplace’s coverage.
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“There are clear trade-offs,” Abraham said. “Individuals differ in their risk preferences.”
You’ll need to look beyond your premium and deducible to know what your annual health-care costs will be under different plans, Donovan said.
Consider also the plan’s coinsurance rate, which is the share you’ll be on the hook for even after your deductible is met on covered services, and what your co-payments will be. Many plans also have multiple deductibles, including one for in-network services and another for out-of-network care.
Meanwhile, some employees may find their household size has changed since their last open-enrollment period, and that they can or need to add someone to their plan. If your spouse has their own health insurance option at work, you’ll want to both sit down and compare the different offerings.
“Financially, it may take some number-crunching,” Donovan said. “You want to evaluate the different premiums, deductibles and copays.
Every year there may be new choices available – as well as changes in your circumstances.
Jonathan Gruber
economics professor at the Massachusetts Institute of Technology
“It’s even possible the less expensive option is to each be on their own plan.”
Make sure to know exactly how much your costs will rise by adding another person to your plan. For example, some employers will extend their coverage to a domestic partner, or someone who lives with you but to whom you’re not married. But in addition to a higher premium and deductible, the benefit for a domestic partner will likely trigger a larger tax bill for you because the coverage is counted as additional income by the IRS.
Some companies will also add a surcharge to your coverage if you add a spouse who has their own workplace health insurance available to them.
Many employees will notice that the health insurance plans offered by their company don’t include dental and vision coverage. Instead, these coverage areas will pop up as separate options with their own price tags.
You’ll want to read the benefit details and “do some rough math” to see how much you’ll save by having the coverage versus paying full price at the dentist or eye doctor, said Louise Norris, a health policy analyst at Healthinsurance.org.
It’s especially important to pay attention to the maximum benefit the plan will provide, Norris said. If the ceiling is low, it may be worth paying out of pocket.
Still, even if the plan won’t save you a significant amount of money, she added, “it might be worth enrolling if you know that having the benefit will be the motivation you need to make your regular dental and optometry appointments.”
2. Consider life, disability insurance
During open enrollment, employees will typically also be presented with different disability and life insurance options.
“Everyone should take the free life insurance their company offers,” said Carolyn McClanahan, a physician, certified financial planner and founder of Life Planning Partners in Jacksonville, Florida. (That benefit is usually a multiple of your salary.)
However, McClanahan said, “If a person has any dependents that count on their income, this probably isn’t enough.”
Although many employers provide the opportunity to buy additional life insurance, “if a person is healthy, it is often cheaper to buy term insurance on the open market instead,” said McClanahan, who is a member of CNBC’s Financial Advisor Council.
“Also, you won’t lose your insurance when you leave employment,” she added.
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If you are unhealthy, your life insurance through your employer may be all you qualify for, McClanahan said. In which case, she said, “be sure to accept it and buy as much as you can.”
Disability insurance is also important, McClanahan said: “If your employer offers it, you should definitely take it.” More than 42 million Americans have a disability, according to the Pew Research Center.
Short-term disability coverage is very limited, she said: “Everyone needs long-term disability coverage unless they have enough savings that they could basically retire if they can’t work anymore.”
Your employer disability coverage may not be enough to support you should you become disabled, and so you should also consider an individual disability policy to supplement your work policy, McClanahan said.
3. Take advantage of savings, spending accounts
Your employer may offer savings and spending accounts that can reduce your taxes and help you to afford your health-care expenses for the year, experts say.
During open enrollment, you can opt to put up to around $3,000 into a flexible spending account, for example. Your contribution will be deducted from your paychecks (and later, your gross income, which can lower your tax bill). But at the start of the year you should have the full amount to you available for deductibles, copayments, coinsurance and some drugs. (There is also a dependent care FSA, which you can use to pay for eligible dependent care expenses, including costs for children 12 and younger.)
Health savings accounts have a triple tax benefit.
Carolyn McClanahan
founder of Life Planning Partners
Financial experts speak especially highly of health savings accounts, or HSAs.
“Health savings accounts have a triple tax benefit – you get a tax deduction when you put the money in, the money gets to grow tax free for health care, and you can take it out tax free for any health-care expenses,” McClanahan said.
If you can pay for your health expenses out of pocket during the year, she said, you can let that money grow tax-free throughout your career and use it in retirement, she added.
Not all workers qualify for an HSA. To be eligible, you need to be enrolled in a high-deductible plan, among other requirements.
4. Evaluate your retirement savings
Unlike with the previous options, you can usually make changes to your retirement savings throughout the year.
Still, the benefit season is a chance to check in with your nest egg, experts say.
“Open enrollment can be a natural time to pause and look at your whole picture,” said Ryan Viktorin, a CFP, vice present and financial consultant at Fidelity Investments.
People should generally be saving at least 15% of their pre-tax income each year for retirement, Viktorin said. (That includes your employer match, if you have access to one.)
Viktorin said she recommends people have at least one year of their annual salary saved by age 30, and six times their annual income by 50.
If these numbers are intimidating, focus on how powerful even small increases to your savings rate can be.
For example, a 35-year-old earning $60,000 a year who ups their retirement saving contribution by just 1% (or less than $12 a week), could generate an additional $110,000 by retirement, assuming a 7% annual return, according to an example by Fidelity.
If your company offers a match to your savings, try your hardest to save at least up to that amount. Otherwise your forfeiting free money, and all the compounding of that additional savings over time.
Before you wrap up your open enrollment, make sure you have beneficiaries listed on your life insurance and retirement savings accounts. More
