Once a year, usually in late October or early November, a strange phenomenon occurs that is known as open enrollment. For most employees, open enrollment is where they can practice the fine art of pretending that if you ignore something, it will go away. However, what most employees don’t realize is that in this case, ignorance is certainly not bliss, and they are overlooking an important part of their overall financial plan that can have a dramatic impact on their future and the future of their family.
Often the value of group insurance is overlooked or not understood. When you look at group insurance, consider the premiums paid as part of your overall compensation package, and consider that your employer would not be providing this insurance (and paying premiums) if there was not any value. Most employers do not understand or communicate the value effectively, so it is up to you to optimize the value of your group insurance while you have it.
When you have open enrollment, you have the big decision of opting in or out of different types of employee benefits. Most employers offer coverage through a cafeteria-style plan, where the employer gives you a certain amount of credit each month that you can use toward the types of insurance that you would like to have. Usually this credit ends up being a lot less than the total combined premiums of coverages that you may want.
Open enrollment is important since it’s generally the only time of year where you can make changes to your employee benefits and add or drop benefits. The only way to make changes to your employee benefits is to wait for the next open enrollment period or have a major qualifying event (marriage, birth, adoption, divorce or death).
Open enrollment is also when you are able to add or remove dependents from your coverage, enroll in a health care and/or dependent care spending account, if eligible (requires re-enrollment every year) and cash out some of your time off and/or sick leave hours, if eligible (you make an election each year.
Note: For each dependent that will be enrolled (or is currently enrolled), you’ll need the following: Full legal name, Date of Birth
What to consider:
- Insurance that you and your dependents have outside of your employer such as individual insurance or coverage through a spouse/domestic partner’s/parents group insurance plan.
- If you are planning to leave your employer in the next year, consider whether your group insurance is portable and if an individual policy is needed. Most group insurance coverage is not portable.
- Understand what each benefit is and what your options are. Use all available resources to learn about your options including your human resources/benefits department, the insurance company and trusted websites such as tonysteuer.com and naic.org.
- Do you have a need for a particular benefit? For example, accidental death and dismemberment coverage is not a great buy, so unless your employer pays for it, you should skip it.
- Is your employer offering any new benefits? Employers are offering a wider range of benefits such as long term care insurance, legal plans, identity theft protection, pet insurance and student loan refinancing programs.
- Wellness plans are becoming more common. Be sure to inderstand the terms and options. These plans can include financial incentives for participation and meeting certain benchmarks.
- Carefully review any changes to your employers plans.
Note: Employers usually now provide a set credit which is applied towards your cumulative employee benefits premiums and contributions rather than directly covering the premiums for each benefit..
What to know about the main types of benefits:
- Disability insurance: Provides benefits in the event you become disabled (temporarily or permanently).
- Employers will typically provide short-term disability benefits in the form of paid sick leave, short-term disability insurance, or both. Coverage can range from a few days to as long as a year, depending on your company’s benefits and your length of employment. Short-term disability insurance benefits are typically paid when you are unable to perform the duties of your occupation (this is a more liberal definition of disability than for the Social Security program). Short-term disability insurance benefits are taxable (for the employee) when the employer pays the premium, which is generally the case.
- A group long-term disability plan policy offered by your employer will guarantee that you have coverage, which means no underwriting application process is involved. A typical policy through your employer replaces at least half of your salary up to a specific maximum benefit, such as $5,000 or $10,000 per month. Just like the short-term equivalent, long-term disability insurance benefits are taxable to the employee when the employer pays the premium, and the amount of the benefit is offset (i.e., reduced) by the amount of benefits that the insured receives from Social Security or workers’ compensation. Some employers offer voluntary long-term disability insurance, where employees may choose to participate and pay their own premiums through payroll deduction. In some cases, the voluntary long-term disability insurance coverage is in lieu of coverage purchased by the employer. More frequently, voluntary long-term disability insurance coverage allows the employee to supplement the long-term disability insurance coverage provided by the employer (supplemental coverage will typically require underwriting).
- Health insurance: Be sure to take into account all aspects of the coverage and not just the cost. You’ll want to compare premiums, deductibles, co-pays, and total out-of-pocket limits. A lower premium may seem like big savings, but you could end up paying even more through higher deductibles and co-pays especially if you have a major medical procedure coming up. Check out the Optimal Insurance Deductible Calculator to see which deductible makes sense for you.
- Watch for any of these changes:
- Has there been a change in provider networks? Are your your preferred health care providers still in the provider network that you are currently in or are considering (make sure your health care provider(s) are still covered in-network).
- Has there been a change in the pharmacy benefits manager (PBM) which may affect the availability and/or cost of your prescriptions.
- Has your employer reduced the amount they contribute to spousal coverage by adding surcharges for coverage when available through a spouse’s employer.
- Is there a new administrator for medical benefits? If there is, be sure to review any change in services or claims processing changes.
- Are there incentives to receive medical services in a new way such as through tele-medicine consultations or a center of excellence.
- Has your employer added or expanded coverage for alternative or complementary medical services such as physical therapy, chiropractic, acupuncture and massage.
- Life insurance: Almost all employers offer group life insurance to their employees. Group life insurance coverage usually provides the amount of your annual salary up to a predetermined maximum amount of coverage. Often employers will also offer supplemental life insurance coverage in additional multiples of your annual salary.The basic coverage (multiple of salary) is paid for by the company and is guaranteed issue, meaning that the insured employee does not have to go through any sort of underwriting.
- When the death benefit is paid, it is income tax free. However, any employer-paid coverage over $50,000 will be subject to income taxes for premiums paid. For example, if you have $100,000 of coverage, you would be subject to income taxes on $50,000 ($100,000 total coverage less $50,000). This coverage will have a premium that increases either annually or at five-year increments based on your age. The coverage will usually also terminate at your separation from the employer.
- Supplemental life insurance is additional coverage that’s usually purchased either in certain amounts (e.g., $25,000 increments) or by multiples of salary up to a certain dollar amount. This coverage is paid for by after-tax dollars, which results in an after-tax death benefit. This cover- age is subject to underwriting (subject to medical history, etc.). Supplemental life insurance coverage is often portable; however, the premiums may change after you leave your employer. Employer coverage is usually more expensive than individual coverage over a long period.
- Flexible Spending Accounts: Your employer may offer these accounts that you fund with pre-tax dollars to pay for medical, childcare/dependent care and transportation costs. At open enrollment time, estimate what you will spend over the next calendar year. Remember, you can only carry over $500 on FSA and it will not roll over to Dependent Care Spending Accounts. If you have a high deductible health insurance plan, you can also a health savings account. During the year, you’ll need to complete reimbursement forms and submit them with receipt and/or explanation of benefit statements (EOB’s). These plans require re-enrollment every year. Learn more about the three types of Flexible Spending Accounts (here).
After you enroll, be sure to review your benefit election confirmations to ensure that all of your elections and/or changes are correct. Benefits will generally remain in effect for the entire plan year unless you experience a qualifying change in family or employment status.
If you do spot an error, you may be able to make an update online (if applicable) or by contacting your employer’s Human Resource Department or Benefits department. Corrections usually can only be made prior to the open enrollment deadline.
GET READY! Toolkit: Access the GET READY! Toolkit on tonysteuer.com (here). You’ll find worksheets where you can record all of the details for your insurance plans. The toolkit, which is free, also includes all of the other worksheets from GET READY! as fillable, downloadable PDF’s on tonysteuer.com (here). To get the most out of this toolkit, get your copy of GET READY! first (Amazon link). Visit the resource center and blog at tonysteuer.com for more tips.