2018 Open Enrollment Guide for Employee Benefits

Welcome to our 2018 Open Enrollment Benefits Guide where we help you navigate through your employer’s benefits package and pick the best options for you and your family.

Picking the right benefit options can save you thousands of dollars per year, but with so many options to choose from it can stressful trying to decide which option will save you the most money..

2018 Health Insurance Open Enrollment Advice:

Choosing the right level of health insurance coverage during your employer’s open enrollment period is one of the most important financial decisions you will make this year.  While you may save money in payroll deductions by going with a less comprehensive medical plan, you take the chance of having higher out of pocket co-pays in the event you or a family member has unexpected medical treatments.

2018-open-enrollment-guideOn the other hand, if your family has perpetual medic expenses due to a pre-existing condition or children that are highly prone to getting hurt or sick, you may want to opt for the higher level of medical coverage offered by your employer.

So how do you know which medical plan to choose especially when your share of the health insurance premiums could range from $0 to over $1,000 per month?  You can never be certain, but here are a few things to consider to help you chose the best medical plan during your company’s open enrollment period.

Monthly Premium Differences:  The first step in determining which medical plan to choose from your employer is to look at the difference in monthly premiums.  Many employers offer a “basic” health insurance plan for one monthly premium and offer a “premium” or “plus” medical plan for a higher monthly premium (which are usually deducted from your paycheck).  The difference between a basic and premium health insurance plan through your employer could be hundreds of dollars per pay period so you want to be sure you’re making the right decision.

Coverage Amounts:  To help decide which medical insurance plan to choose you’ll also want to look at the coverage levels offered by each option.  A typical medical benefits chart is shown below to help show the potential cost savings between a basic medical insurance plan and a premium or plus medical plan:

2018-open-enrollment-medical-standard-plan-vs-premium-plus-plan

Typical health insurance coverage amounts and copays for 2018.

As you can see in the above example, you’ll have fewer out of pocket costs and copays if you chose the premium “Plus Plan”.  Everything from prescription drugs, emergency room visits and routine lab work will cost you less.  You’ll simply need to decide how likely it is you or a family member will be using any of these services and whether or not the added cost of signing up for a premium medical plan is worth it.

Pre Existing Conditions:  If you or a family has an costly pre-existing medical condition requiring expensive prescriptions, ongoing therapy, frequent operations or other medical expenses, it is more likely you’ll benefit by choosing your employer’s premium or plus medical plan.  Your monthly premiums will be higher but your out-of-pocket costs will likely be lower for the actual medical bills.

Accident/Illness Prone:  If you or a family member is prone to having accidents (high contact sports, etc.) or gets sick frequently, you may want to consider the higher level of coverage provided by your employer’s premium medical plan as well.

2018 Health Savings Accounts (HSA):

Depending on your employer’s health insurance plan, you may be eligible for what’s called a Health Savings account (HSA).  HSA accounts are available to consumers who are enrolled in high-deductible health plans (HDHP) as defined by the Internal Revenue Service.  If you’re not sure if your employer’s health insurance plan qualifies for a health savings account then speak with your human resources department.  So what is an HSA account, you ask?

An HSA account works similar to a Flexible Spending Account (see below) in that you’re able to set aside a certain amount of money each year to pay for eligible medical expenses.  The advantage for an HSA over an FSA is that HSA funds can carry over from year to year and actually gain in value.  You’re also allowed to set aside significantly more money in an HSA compared to an FSA (2018 HSA contribution limits have not been released yet).  Some HSA plans will even allow you to invest the HSA in mutual funds, bonds and individual stocks making the account more like and Individual Retirement Account (IRA) than an insurance account.

The advantage of an HSA is that you’re able to set aside a significant amount of money tax free to pay for eligible medical expenses ($3350 individual / $6,750 Family).  You also get a triple tax break as contributions into the account are tax free, the money can grow tax free, and when you spend it on eligible medical expenses you don’t pay taxes on the withdrawals.

The disadvantage of HSAs is that the only way you’ll qualify for them is if you opt for a high deductible health insurance plan (either through your employer or through the private health markets).  Some employer’s may only offer a high deductible health insurance plan so you won’t have a choice.

If you and your family are in decent health, you may actually come out ahead financially if you opt for a high-deductible health plan (HDHP) and couple it with an HSA account.  This is especially true if you plan on retiring before you’re eligible for Medicare; HSAs funds can help provide the financial security you need to ensure your health care costs are covered.

The Best Choice for You:

Only you can decide which medical insurance option is best for your family.  Be sure to take the above points in to consideration when determining which option will save you the most money.  It’s also an excellent idea to look at how much you’ve spent on medical bills in the past and how often you or a family member actually went to the doctor or other medical specialist.

If your family is relatively healthy and you don’t anticipate any major medical expenses in the near future, then a basic health insurance coverage may be the best option for you.  On the other hand, if you know you’ll have some extraordinary medical expenses in the coming year (due to a pregnancy, planned surgery, pre-existing condition, etc.) then it may be best to sign up for the most comprehensive medical insurance option your company has.

2018 Flexible Spending Accounts (FSA) Guide:

In addition to choosing the right medical insurance plan, you can also save a significant amount of money by participating in your employer’s Flexible Spending Account or “FSA”.  In 2017, you’re typically allowed to set aside up to $2,500 (before tax) in a separate savings account that can be used to pay for qualified medical expenses (2018 FSA contribution limits have not yet been released).

For instance, let’s say you chose the “Basic” medical plan offered by your employer and you went to an in-network urgent care facility because you burned your hand cooking dinner.  Your copay would be $50.  You could pay this copay with the tax free money in your flexible spending account instead of paying for it with after tax money.

Depending on how much money you anticipate spending out of pocket each year, you can save hundreds of dollars in taxes by using utilizing an FSA account.  Look at the potential tax savings in the graph below:

2018 flexible-spending-account-tax-savings-chart

As you can see in the FSA tax savings chart above, you could save $825 per year in taxes if you spend the maximum out of your FSA account.  However, you’re only allowed to carryover $500 of unused FSA funds into the following year (2018).  In other words, any unused money in your flexible spending account (above $500) will be forfeited, so make sure you spend your unused FSA money by the end of the year.

2018 Dependent Care FSA (DCFSA) Account Guide:

A Dependent Care FSA Account is another excellent option provided by many employers during benefits open enrollment.  Dependent Care FSAs (DCFSAs) work much the same as regular medical FSA accounts.  You’re allowed to set aside before tax money in a separate savings account that can be used for qualifying dependent care expenses like day care, summer day camps, child care and elder care expenses.  IRS guidelines allow you to set aside up to $5,000 in a dependent FSA account, however, both spouses must be employed (or have qualifying income) in order to take advantage of a Dependent Care FSA.

The nice thing about Dependent Care FSAs is that you’ll be able to more accurately forecast your dependent care expenses for the upcoming year compared to trying to guess what your medical expenses will be (as you would with a medical FSA).  The following graph show the potential tax savings of using a Dependent Care FSA based on various income tax rates and contribution amounts.

2018 dependent-care-fsa-tax-savings-chart

As you can see, there is a potential to save up to $1,650 a year in taxes if you fully utilize a dependent care FSA and you’re in the 33% tax bracket range.  If you live in a state with a high state income tax your potential tax savings could be even higher.

2018 Employer Group Life Insurance Guide:

Many employers offer a basic level of life insurance for their employees for free.  The level of coverage is usually 2X your base salary.  For example, if your base salary is $50,000 per year, your employer will pay your beneficiaries (spouse, kids, parents, etc.) a survivor’s benefit of $100,000.

During your employer’s open enrollment period, you’ll often have the option to buy additional coverage.  Many companies will allow you to buy up to 5X your base salary in life insurance coverage in addition to the coverage they provide you for free.

The problem with buying group life insurance through your employer is that the additional monthly premiums can be VERY expensive, especially if you’re relatively young and in good health.

Before you decide whether or not to purchase additional life insurance through your employer, make sure your price out a term life insurance policy through a reputable insurance company.  You might be amazed at how much term life insurance coverage you can buy on the open market compared to what you’ll pay going through your company’s group life insurance options.

As always, make sure the term life insurance contract you buy is a long enough term to cover your financial needs.  If you have young kids at home or plan to have you kids in the near future, you’ll probably want at least a 20 year term life insurance policy.

On the other hand, if you’ve had a troubled medical history, you’ll probably get a much better deal on life insurance purchasing it through your employer.  Make sure you look at each option carefully to decide which life insurance policy is best for you.

2018 401K Contribution and Benefits Guide:

If your employer offers a 401K savings program, it is essential that you enroll in it soon as you possibly can (whether it’s during the open enrollment period or not).  A 401k will likely be the best opportunity you have to build significant wealth and ensure you have a secure financial future when you get close to retirement age.

One of the best financial decisions I’ve ever made was the one to max out my 401k as soon as I got my first job out of college.  It’s never too late to start saving for your financial future and the sooner you start the better off you’ll be.

What you may not realize is that increasing your monthly or yearly contributions to your 401K doesn’t have nearly as great an impact on your take home pay as you might think.  The reason is contribution are taken out “before tax”.  For example, if you increase your monthly 401K contribution amount by $500, and you’re in the 30% tax bracket (between federal and state income taxes), your take home pay will only decrease by $350 vs. the full $500 (more on 401K payroll deductions here).

Investing in your 401K is one of the only sure-fire way to build wealth.  What makes them even more enticing is the fact that many employers will match your contributions up to a certain percentage of your income.

So why am I wasting my time telling you all this?  You probably already know that you should be investing in your 401K, you just haven’t gotten around to it.  Well, you’re missing out big time on potential earnings.  The chart below shows what $500 a month will grow to after 40 years of investing assuming a conservative annual return of 8% (the stock market has average 11% over the last 85 years).

401k-growth-chart-open-enrollment-2017

Projected growth of a $500/month investment over 40 years @ 8% growth.

As you can see, your $500 per month investment will conservatively grow to over $1,678,000.  And remember, your monthly take home pay will only be reduced by about $350 due to the tax advantages of investing in a tax deferred retirement account.

401K contribution limits are expected to remain at $18,000 in 2018 which means you could have significantly more money at retirement if you can afford to save more.  Another advantage to investing the maximum amount in your 401K when you’re young is that your lifestyle will adjust to it.  If you plan on waiting until you’re older before you start bumping up your 401k contributions, you’re going to find it a LOT harder to do so.  Especially if you’re married and/or have kids.

Roth 401K vs Traditional 401K:

Another important choice you may have during your employer’s open enrollment period is whether or not to enroll in a Roth 401K instead.  A Roth 401K works similar to a regular 401K except contributions are made “after tax”.  The advantage being that your 401K contributions will grow tax free and you won’t have to pay an additional tax when you withdraw the funds down the road (in retirement, etc.).

Roth 401Ks are an excellent choice if you expect that your effective tax rate will be higher when your reach retirement than it is right now.  Honestly, I don’t see many situations where a person would have higher taxes during retirement so I’ve shied away from the Roth 401K option offered through my employer.  You may decide otherwise, that’s the beauty of open enrollment, you get to make the decisions that are best for you and your family.  I’ll I can do is help explain the different options to you.

2018 Accidental Death and Dismemberment Insurance (AD&D) Guide:

Another confusing benefit employees must decide on during open enrollment is whether or not to purchase Accidental Death and Dismemberment Insurance (AD&D).  If you’re like me, you’re probably wondering what AD&D is for and whether or not is worth it.  You may even be wondering if it’s a scam.

As the name implies, AD&D is another form of life insurance that will pay your beneficiaries a set amount of money in the event you die an accidental death (car accident, drowning, etc.).  AD&D policies will also pay a certain benefit (to you) in the event you lose an appendage (limb) or eye sight as a result of an accident.

Some employers will offer AD&D insurance automatically as part of a group plan, other’s will give you the option of purchasing “Voluntary” AD&D insurance.

In most cases, I recommend that you save your more and not buy additional AD&D coverage from your employer.  You should already have adequate term life insurance coverage (if you don’t, you better get some!) so you’re covered there.

In the event of a dismemberment or loss of vision, you should have long term disability insurance through your employer.  If long term disability insurance is not provided through your employer, I HIGHLY recommend that you buy a private policy through a reputable insurance company.  Long term disability insurance (income replacement insurance) is relatively cheap and more than worth the peace of mind it provides in the event you sustain a medical injury or are diagnosed with a medical condition and prevents you from working.

Conclusion:

Your employer’s open enrollment period is not to be taken lightly.  When you do your research and follow the advice in this guide, you could potentially save thousands of dollars a year. Good luck and please feel free to ask any questions in the comment box below.  I’ll do my best to help you decide which health insurance option to choose or how much money you should set aside in a Flexible Spending Account.

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