MONEY TALKS - With 2019 on the horizon, many companies are opening the enrollment period for their employees to change their benefit elections. The specific benefits offered vary from employer to employer but often include medical, dental, disability insurance, and life insurance. This period, often referred to as “open enrollment”, is generally the only time of the year where a change can be made to your benefit elections. That being said, there is an exception to the rule if you experience a qualified life event such as marriage, divorce, birth of a child, adoption of a child, change of employment status of a spouse, or death of a spouse. While it’s not uncommon to experience a qualified life event, it’s usually not something that happens year over year. Open enrollment on the other hand happens every year, and anyone can make a change to their benefits during this period. This presents a great opportunity for employees to review their benefits to make sure they are providing value based on the cost of coverage. Without getting into the details of every employer benefit offered, here are 3 major benefits that you should review during your open enrollment period.
Medical Coverage - Medical coverage is one of the primary benefits of working for a large employer. Determining which plan is best for you and your family will depend on your individual circumstances. First and foremost this should be viewed as a health insurance decision rather than a financial transaction. Often times the “cheapest” plan could end up costing you more if you need to use it. Most employers offer multiple plans with varying benefits and costs. Traditional healthcare plans (HMO or PPO) typically offer higher benefits at a higher cost to the employee whereas High Deductible Health Plans generally provide less benefits at a lower cost. When evaluating which plan to choose you should look past the annual premiums, which are only one component of the total cost you pay. The copay, annual deductible (amount you pay out-of-pocket before coverage begins), and coinsurance (the percentage you pay after meeting the deductible), along with the annual premium, collectively determine the total cost you pay. Generally speaking, the higher your expected medical costs, the more you should favor a traditional healthcare plan. High Deductible Healthcare Plans on the other hand may offer similar benefits with higher out-of-pocket maximums; however, they have a distinct advantage over traditional healthcare plans in that they can be paired with a Health Savings Account (HSA). An HSA is a savings account that can be used to pay for qualified medical expenses. However, unlike most savings accounts, contributions to an HSA are tax-deductible. Furthermore, many employers will voluntarily contribute $500 - $2,000 into the HSA account on your behalf, none of which is taxable to you. Any growth, interest, or dividends within your account are tax-sheltered. And most importantly, distributions from an HSA that are used to pay qualified medical expenses aren’t taxed. Determining which healthcare plan is most suitable for you and your family is an important decision that should not be overlooked. Rather than simply re-enroll in the plan you were in last year, take a look at your options and determine which plan matches your needs the best.
Disability Coverage - The goal of disability coverage is to provide income replacement should you become disabled and unable to work. Some employees may initially be hesitant to enroll in disability coverage due to a common misperception that most disabilities are the result of an injury. The truth of the matter is, the vast majority of disability claims are due to illness such as heart disease, cancer, and lower respiratory diseases; many of which may be unavoidable unless you hit the genetic lottery. Most employers offer two types of disability coverage: Short-Term Disability (STD) and Long-Term Disability (LTD). As the name implies, STD coverage usually provides temporary income replacement for up to 90 days. Often times your employer may offer this coverage at no additional costs. LTD coverage on the other hand is usually an elective option that costs the employee. The exact benefit provided varies from plan to plan but traditionally cover 60% of your pre-disability salary. The benefit period generally starts on the 90th day of disability and lasts until the earlier of recovery or retirement age, as deemed by the Social Security Administration. The benefits of LTD cannot be understated. For example, suppose a 35 year old making $100,000 per year suffered a catastrophic illness that prevented them from returning to work. If the employee had LTD coverage, they could potentially receive $60,000 a year for 30+ years. Conversely, if the employee did not have LTD coverage, their income would likely stop after the 90 day STD benefit period. Be sure to review both your STD and LTD coverage during open enrollment. LTD coverage should provide at least 60% of your pre-disability income and, if a higher coverage level is available, be sure to evaluate whether or not it make sense to purchase additional coverage.
Life Insurance - Most employers offer life insurance equal to 1x or 2x your annual salary at no additional cost to the employee. Unfortunately, for most employees, this coverage does not meet their needs. While the amount of life insurance needed will vary from one person to the next, a good rule of thumb is you should have 7x – 10x your annual salary in life insurance. If you are looking for a more accurate calculation, there are plenty ofavailable online. The good news is that many employers will allow you to purchase additional life insurance coverage. How much will depend on the individual employer, but it’s common for the employer to allow you to purchase up to 5x your salary, up to a maximum benefit. Furthermore when life insurance is purchased through a group plan, as would be the case with any plan offered through your employer, you may be able to avoid any medical underwriting. This could be a huge benefit as you otherwise may not qualify for a standalone policy if you have a preexisting medical condition. Employer offered life insurance for other family members is usually limited, and you may be better served purchasing insurance through their employer or on the open market. Be sure to review your life insurance needs during open enrollment and make the necessary changes so your coverage and needs are aligned.
Open enrollment is the one time of year where anyone can change their benefit elections. While medical, disability, and life insurance coverage are probably the most important decisions one needs to make, there are other employer provided benefits such as dental, vision, flexible savings accounts, commuter benefits, and group legal protection that should not be overlooked. Don’t be a SALY (Same As Last Year) during open enrollment, take the time to evaluate what benefits provide you the best value based on the protection provided in comparison to your cost of coverage!