Each year companies offer what is called “Open Enrollment” to employees when customizations and changes can be made to their benefit elections. Open enrollment windows typically occur in the fall and are a great opportunity to make adjustments based on changes in life circumstances, new goals or plans for your future, and more. During this conversation we provide some context behind the open enrollment process, give some insight and guidelines of the major employee benefit areas you should evaluate, and explain how to make the changes that are best for you and your family.
Outline of this episode
- Confusion abounds around open enrollment [0:24]
- What IS open enrollment? [1:23]
- Health insurance is typically the most vital part of benefit selections [3:45]
- Life insurance options during open enrollment [10:50]
- Disability insurance options to be considered [13:28]
- Why retirement savings may need to be updated during open enrollment [16:41]
- Ancillary benefits you may want to update [19:01]
What is open enrollment and how should you prepare for it?
Open enrollment is the time each year when employers “open” the benefits options for employees to make changes or adjustments as they desire. Health insurance, group disability, optional life insurance, and more could be a part of the benefits package to which you are able to make changes. The exact dates of the open enrollment period will be different for each employer, but it typically takes place in September, October, or November of each year.
The open enrollment period tends to be short, so it’s a good idea to prepare ahead of time so you can make the changes that benefit you the most. There are three main resources you’ll need to get prepared: your employee benefits guide (provided by your employer), your most recent pay stub, and the current options and costs for benefits for the upcoming year. Beyond that, you may want to have some scratch paper on hand to do a few quick calculations as you assess your needs in some of the benefits areas.
Reviewing your Health Insurance options during Open Enrollment
Health Insurance options are one of the biggest perks provided by employers and can have a substantial impact on your finances. Typically there are three options provided by employers and each offers different features, deductibles, co-pays, providers, and premium costs. Let’s consider the three main options:
PPO plans are the most expensive option and are typically more flexible. They allow for more choices on your part in terms of deductibles, access to providers, and more.
HMO plans are at the least expensive end of the spectrum and tend to have less flexibility, more restrictions, and may require referrals from your primary care physician in order to see specialists or receive special services.
There is typically a third option of some kind that is priced somewhere in the middle and offers a mixture of what we’ve described for PPO and HMO plans.
To decide which type of plan is best for your family, you should consider your situation in life, current state of health for all family members covered by the plan, and monthly financial obligations. You may want to estimate your expected medical costs under each plan to see which option is best for you, so your scratch paper and pencil may come in handy at this point.
One additional item to consider with health insurance is a Health Savings Account (HSA). This account is a great benefit if your employer offers it. HSAs are accounts you can contribute to throughout the year for anticipated healthcare-related expenses. You’ll receive a tax deduction when you contribute, and can then use the money for out-of-pocket health costs as they arise. Or, if you don’t need to use the funds for those types of expenses, there are options to invest the money toward the future.
Flexible Spending Accounts (FSA)
Almost every employer provides FSAs. There are two types — one for healthcare expenses, similar to the HSA mentioned above, and another that can be used for dependent care expenses. These are “use it or lose it” accounts that require any funds contributed to be used by March of the following year. You also don’t have the ability to invest the money for future expenses, like you do with an HSA. However, they provide a great way to save on taxes as you pay for things you’d pay for normally. If you know your out-of-pocket expenses for health care or childcare, you can easily use these accounts to your advantage.
As you consider an FSA, check to see if your employer offers it and ensure that you will have enough out-of-pocket expenses to warrant using it. But keep in mind, maximum contributions can be capped if you're a higher earner, so check with your HR office about that possibility. And if you have a Health Savings Account, you cannot contribute to a healthcare FSA as well. One additional nuance to FSAs is that you are responsible to keep track of qualified expenses (with receipts) and reimburse yourself from your FSA.
Life Insurance options
You may have heard the oft-quoted rule of thumb about determining the amount of life insurance you need: 8 to 10 times your annual income. We’re hesitant to encourage such a hard and fast guideline because the amount of life insurance you need will vary depending on your individual needs, assets, investments, etc. You may want to start with the 8 to 10x guideline but make adjustments based on your situation. Then, compare the number you come up with to your existing life insurance coverage, including employer provided group coverage and individual life insurance. Is there a gap between what you need and what you currently have? Then decide whether to bridge the gap by adding optional group coverage through your employer, or through purchasing individual insurance yourself.
Also included in this conversation is an overview of disability insurance considerations, retirement savings options, and ancillary benefits that you may want to update.
Resources & People Mentioned
- Download our guide: The Toolkit for Optimizing Your Finances as an Employed Physician
- Download our guide: The Financial Checkup