It’s open enrollment time again for next year’s insurance benefits. This checklist will help you with understanding insurance benefits offered by your employer. With insurance costs rising and benefits falling, we need to be diligent about reviewing policies and shopping around to save.
Your company’s insurance benefits have real value that is calculated as part of your total compensation, so pay attention and maximize these benefits to your full advantage. The deadline to enroll is usually by mid-December, but this varies by employer. A friend of mine has to turn hers in early by Nov. 2nd, so check with your HR manager so you don’t miss your deadline. Some of your benefits *might* get auto carried forward to the next year, but many don’t such as discretionary flex spending, which reset to zero unless you sign up again.
Take Advantage Of Your Insurance Benefits Program
You don’t want to die prematurely or get sick and cause your loved ones a ton of financial pain just because you didn’t check your medical and life insurance benefits options. A few months ago I learned first hand why you should Never Take Your Health For Granted and I have a renewed appreciation for health insurance and medical care. Even if we feel fine today, we just don’t know what could happen tomorrow.
We’re all busy people, but putting open enrollment at the bottom of your to do list is careless. You owe it to yourself and your family to take advantage of your benefits program. If you don’t know what “excess liability insurance” or “long-term disability insurance” is yet, it’s time to get cracking because ignorance can leave you broke!
Open Enrollment Insurance Checklist
* Medical: Please don’t decline your health insurance benefits! Go with either a PPO (Preferred Provider Organization), EPO (Exclusive Provider Organization) or a HMO (Health Maintenance Organization) provider. The main difference is that PPOs and EPOs don’t require you to choose a Primary Care Physician (PCP) to coordinate and refer you to other specialists in your network. For example, as a PPO or EPO client, you can typically go straight to a rheumatologist, chiropractor, or other specialist for care, which saves time and generally provides you more choices than a HMO network. Keep in mind flexibility and a better selection of doctors will typically cost you more.
Other features to consider are copays and coinsurance. A copay is where you always have a fixed payment every time you see a doctor, no matter how much your medical services cost. Coinsurance is when you share a certain percentage of the medical cost. In general, copays result in more expensive monthly premiums than coinsurance. If you had a $1,000 knee operation for example, your copay may be just $50 bucks, but with coinsurance, you may have to pay 20% of the entire cost, or $200. Some plans even have a combination of copays plus coinsurance, so make sure you understand what you’re getting before you sign up.
If you feel you may have higher medical expenses in the coming year, the easiest rule is to go with higher premiums because that generally means higher coverage and less out of pocket expense. Of course, don’t forget to ask your provider for clarification. I’ve typically gone with a PPO copay plan that costs about $50/month pre-tax.
* Health Care Flexible Spending Account (FSA): If you anticipate something major, like knee surgery or corrective vision surgery, you should sign up for flex spending. The maximum you can elect for FSA will be $2,500/year beginning January 1, 2013. In 2012 and prior, companies designated the cap per employee, which was commonly $5,000. All contributions in 2013 will remain pre-tax, however, so you can still save on your highest marginal tax rate.
I typically allocate $500 a year which I use towards copays, an eye exam, contacts, and dental work. Some people find the headache of paperwork outweighs the savings, but I’ve always found it easy to file. Taxes make me grouchy, especially from a business perspective, so I love taking advantage of ways to lower my tax bill. Just don’t over budget your enrollment annual amount, because you’ll lose whatever you don’t spend or fail to claim.
* Dental: Pretty straightforward and a necessity because dental work without insurance is crazy expensive. There are many different plans with varying coverage and deductibles. Mine provides two cleanings a year, and 70% coverage on dental work with a $100 deductible a year for $8 bucks. Nothing is ever really “free,” so watch those deductible costs!
* Vision: Vision insurance benefits provide coverage for eye examination, eye-wear, contacts, eye diseases and surgeries. Those with perfect vision should still consider opting-in if you can find a cheap plan around $3-$5/month. I get vision discounts through my medical insurance, so I’ve chosen not to have a dedicated vision insurance plan. Right now I use my FSA to cover eye exams, new glasses, and contact lenses. As I get older, I will probably start paying for vision insurance since I’m on the computer so much and don’t want to get caught with any big surprises.
* Basic Life: A token amount of term life insurance that is generally provided free by your employer. My firm provides $50,000 but this can vary greatly by employer. Find out what your coverage is and make sure you have an updated copy of your beneficiaries and their proceed percentages on file.
* Supplemental Life: More term life insurance that is usually a multiple of your base salary (1X – 10X is common). $1,000,000 a year costs less than $20/month and goes up in pretty correlated increments from there. The amount of supplemental life you need is determined by the amount your dependent needs to pay both your bills without having to worry. The amount is subjective, but I would shoot for at least 5 years of total expenses i.e. add up all expenses such as rent, food, mortgage, travel for the year, and multiply it by 5. This is why you need at least a rough budget!
* Personal Accident Insurance: These insurance benefits are often provided for free by your company if you are in an accident that’s non-travel related and die on the job. I’ve seen ranges of $100,000 to $1,000,000, so best to find out what your coverage is so you don’t have to guess or get caught empty handed.
* Excess Liability Insurance: Also called an umbrella policy which is very important if you have lots of assets which are exposed if you get sued. Simply calculate your net worth and get a umbrella policy that’s 50% over your net worth amount to be safe. Cost is usually around $100 per $1,000,000 of coverage a year. Click the link to read more about how an umbrella policy works. This is very important, especially if you have teenagers!
* Short Term Disability: If you are a construction worker and injure your back and can’t work beyond the amount of your sick leave, short term disability kicks in. Time off for maternity leave is also commonly covered under short term disability. STD insurance benefits typically provide you with 60% of wages for six months, but varies from company to company. The pricing is generally free to a very minimal amount ($5-10/month) if there is any cost at all. Generally there should not be.
* Long Term Disability: These insurance benefits will kick in after you exhaust short term disability and are there to protect you from catastrophic injury or illness. LTD benefits also typically provide 60% of monthly eligible earnings after short-term disability runs out. You generally always want a policy that lasts until you are 65, because some plans may only last 5 to 10 years. Call your health insurance provider and ask. Costs generally run from $10-$60/month after-tax depending on how much you make.
Add Up All Your Insurance Benefits Options
Completing your open enrollment should give you further appreciation of your firm as well as remind you of how fortunate you are to have a job that offers insurance benefits. Literally millions of people don’t have coverage, not by choice, and any unfortunate mishap could send them into massive debt or poverty.
The value of all your insurance benefits per year can simply be calculated by how much it would cost if you had to pay for everything on your own. The numbers are not pretty. Companies foot huge bills for insurance benefits and most employees never even take the time to realize this, especially those just a few years out of college.
Make sure you don’t take for granted all the benefits your company provides, and fill out your forms before the deadline! The most important thing you can do is educate yourself and your family about all your company’s insurance benefits and ask HR if you are unclear about anything.
Everybody is trying to save money for their health but nobody thinks that insurance is the best option regarding many points of view. Investing in your health and preventing is the best everyone can do for theirselves.
Preventative care really is worth it. I foolishly didn’t realize that my insurance covers 100% of the cost of flu shots until this year, so I finally got one and was so thrilled it was free.
Open enrollment from my wife’s company starts November 1. But importantly, w had to take a health screening by the end of September to be eligible for all health plans. Results also dictate the amount of the bonus we get in the HSA.
One thing I’ve never quite understood was the exact difference between an HSA and a FSA.
Oh wow, that’s quite an early lead time for getting a health screening. Good thing you completed it in time.
HSA and FSA have some similarities but a decent amount of differences. First, to qualify for an HSA you need a high deductible health plan and the contribution limits are also slightly different than FSAs.
FSA accounts are setup and owned by the employer versus HSAs are bank accounts that an employee can set up regardless of where they work. HSAs also need to have funds deposited in them for you to be able to use the money, just like a regular bank account.
FSAs on the other hand will give you access to your entire election amount up front even if all of the funds haven’t been deducted yet from your paycheck.
Well that’s handy about being able to use the FSA up front. What happens if you use it up front and wind up leaving that job?
Good question. The remaining balance would get deducted out of the last paycheck. Some employers may also have a cap on how much you can use up front for this very reason, especially companies who allow high yearly contributions. Now that there is going to be a $2500 maximum for everyone, I imagine this will become less of an issue.
I’m so glad I don’t have to deal with open enrollment! But I will mention this: many people try to save money by skimping on disability coverage. Statistically, I wouldn’t do this. Take the highest amount of disability coverage available.
Nice! Yeah I agree it’s easy to think we won’t need disability insurance until something happens and we get stuck in a bind. I know a lot of people who have been on short term and even long term disability, and it really can be useful not to mention a big money and life saver.
Ahhh, open enrollment benefits. Something entrepreneurs and folks like myself don’t have and miss!
Excellent comprehensive post. Don’t take your benefits for granted working folks! They are literally life savers!
Haha, yeah you must be happy not to have to worry about it anymore. I really am so thankful having the benefits that I’ve got now after my health scare in the summer. It was crazy looking at the size of the bills pre-insurance!
Great timing Sydney as this is something my wife and I just discussed a few days ago. My little brother will be living with me starting next year and we are going to put him under our insurance and on top of that we are expecting our first child next year. We have a plan now that just wont cover having two teenage boys and a new born. Sitting down and speaking with some one helps out a lot but having some idea of what you need makes it a little easier.
That’s quite a lot of changes Thomas! Good call on getting more coverage, especially with three children under one roof. Congrats on your wife’s pregnancy!
Sydney –
Thank you for pointing out short term disability. You see so many articles about how the lack of paid maternity leave in the U.S. compared to other countries. But nobody ever mentions that this very simple solution.
The premium costs are often far higher than than what you cite, but the payback is still very high for women planning a family.
And not only that, having a baby in the first place is incredibly expensive! One of my friends said it would have cost her $10,000 without insurance. Thank goodness she had coverage for all her hospital bills and short term disability to cover her maternity leave.