Open enrollment season is a period of time when employees may elect or change the benefit options available through their employer, such as health, dental and life insurance, and ancillary or voluntary benefits ranging from legal services to pet insurance. Many employers will slightly change their offerings/plans during open enrollment; you may need to adjust according to the plans that are currently being offered to you. Some employers will also require action on your part or you may be unenrolled from plans. Your employer’s open enrollment usually lasts a few weeks, typically at the end of the year.
First, you need to determine if your needs have changed over the last year, or if they will change over the next year. For example, someone in their mid-twenties may need to begin coverage as they are no longer eligible to be on their parents insurance. It’s important to consider coverage changes within the open enrollment period as you may not be able to switch throughout the year with some sort of material change. See our Health Insurance blog for a deeper dive into the different types of plans available.
Cost is another consideration. Your premiums can go up, which means your take-home pay will be reduced if the cost is deducted from your paycheck. In addition, deductibles and copays may also increase depending on the plan.
If you and your spouse each have employers that offer health insurance, your open enrollment periods are a good time to compare your best options. If cost or coverage is changing, it might make sense for each of you to stay with your own employer’s plan, or for both of you to be on the same plan depending on which plan works best for you and your family. If you have children, this is also a good time to compare policies to determine which offers the best coverage at the best rates.
Another important tool to take advantage of, if available to you, is an HSA or FSA. With an HSA, you’re allowed to put pre-tax money into a separate, interest-bearing account that can be used to pay for medical expenses. To qualify for an HSA, you’ll need to be enrolled in a high-deductible health plan (HDHP). If you’re unsure whether your current plan qualifies, that’s something you’ll want to consider before the start of open enrollment.
A flexible spending account (FSA) also allows employees to set aside pre-tax dollars for medical expenses. FSAs are a simpler option than HSAs, because contributions typically do not roll over. However, if, for example, you know you will be spending $1,000 on out-of-pocket on prescription drugs and other co-pays. it makes sense to have that much money taken out of your paycheck over the course of the year. Doing so reduces your taxable income by $1,000.
While not necessary, the open enrollment period can also be a good time to review other financial considerations, such as your tax withholding. A significant change to your insurance costs could be a reason to increase or decrease the amount withheld from your paycheck for state and federal taxes.
It’s also a good time to review your retirement plan, such as a 401(k). If investing in an HSA is a change you make during open enrollment, for example, you might want to revisit your retirement contributions.
Lastly, it’s important to work with a financial professional to ensure you’re optimizing your situation based on the options available to you. Everyone’s situation is unique and it’s important to know what will work best for you and or your family.
Ben Webster, CFP® and Derek Prusa, CFA, CFP®
Co-Founders and Owners of Aspire Wealth
October 2021 Newsletter
