Because many employers who offer benefits start the enrollment process sometime in October, most of us associate open enrollment at work with the end of the year. Also, the deadline for elections usually falls at the start of November, so insurance cards and documents are received before the new year begins.
However, for some of us, open enrollment occurs mid-year with enrollment starting in May to June and finalizing in July. In this case, the new elections take effect in August.
Additionally, the Biden administration recently extended open enrollment through the Marketplace and the Affordable Healthcare Act until May 15th. This program provides affordable, comprehensive healthcare coverage for those not covered by an at-work plan. Let’s take a look at the commonly-offered benefits and how you can make the most of them.
Small employers typically offer one to three plans (usually either HMO or PPO) that employees can participate in. In these plans, pricing varies with employee demographics, availability in region, and employer contributions.
Some employees will choose plans that have lower deductibles and higher premiums if they have small children, require prescription refills, have upcoming procedures, or require doctor visits. Others will opt for higher deductible and lower premium plans, which work well if they do not require constant doctor visits or prescription refills.
If the employer offers Flexible Spending Accounts or a Health Savings Account, employees can elect to use these tax-favored vehicles, so they can pay for medical expenses. The American Rescue Plan, which was signed into law March 11th, 2021, changed the limits and rules for the year 2021 only, which include the following:
Healthcare Flex Spending Account (FSA) – FSAs are accounts that employers offer, using pre-tax funds to pay for expenses not covered under health insurance. Some options include healthcare FSAs, Dependent Care FSAs, and Limited Purpose FSAs. Each FSA should be reviewed carefully before making a decision, as each account has a different purpose.
Individuals can contribute $2,750, while married couples can contribute up to $5,000. With both options, the contributors are subject to income limitations. The American Rescue Plan allows individuals to either carry over up to $550 into the following year or have a 12-month grace period to spend down the remaining funds after the year end limits (for years 2020 and 2021).
Health Savings Accounts (HSA) – We are huge fans of HSAs at Sun Valley Financial! This option is available to individuals who have a high-deductible plan with a minimum deductible ($1,400 for individuals, $2,800 per family) and out-of-pocket threshold ($6,000 for individuals and $13,800 per family). However, FSAs and HSAs cannot be used in the same year. Again subject to income limitations, HSAs have a limit of $3,600 for individual coverage and $7,200 for family coverage.
Unlike FSAs, HSA funds can be rolled over from year to year, transferred from job to job, and started at any time outside of open enrollment. Additionally, HSAs offer a triple tax advantage. First, HSAs can be used tax-free for qualified medical expenses. These expenses range from a co-pay to your primary care physician to orthodontics or Lasik eye surgery. Also, HSA funds can help pay for healthcare or Medicare premiums as we approach retirement. Finally, HSA funds can be used tax-free after age 65 to supplement income needs in retirement.
Group Life Insurance – Because the rates lower as the group size increases, group life insurance is a cost-effective way to obtain coverage. Also, group coverage spreads risk amongst the policy participants, so the insurance provided usually offers a base amount with no medical exam. Some employers offer additional coverage for extra premium, and some of these options may require a simple medical questionnaire.
Unlike individual life insurance coverage, which requires some kind of underwriting, group coverage often provides a guarantee-based coverage regardless of medical history or pre-existing conditions. Also, this coverage is often portable, even for the uninsurable. As a result, this is a great option for individuals who would otherwise be declined or have their premiums significantly increased. However, although some coverage is better than none at all, these numbers are only a fraction of what most individuals need.
Accidental Death & Dismemberment (AD&D) – This type of insurance is frequently mistaken for life insurance. Unlike traditional life insurance, AD&D only covers the insured individual in the event of an accidental death or unusual event, such as the loss of a limb, hearing, or sight. This type of policy will not cover a death due to natural causes or terminal illness. Even then, a large amount of coverage can be purchased for a very small amount of premium.
Long-term (LTDI) and short-term disability insurance (STDI) – Most employers will offer these coverages as part of their benefits package. STDI coverage has a waiting period ranging from a few days to a month and is designed to replace forty to sixty percent of income for up to one year. LTDI coverage kicks in after STDI’s coverage ends, usually following a 90-day period. At this point, LTDI coverage replaces up to 70 percent of income while on claim. When considering these benefits,one should consider the taxation of income in the event of going on claim. Premiums paid by the individual’s employer will generate taxable income, while premiums paid by the individual will generate tax-free income.
Other benefits – Most benefit packages provide other benefits, such as vision, dental, and legal coverage. Dental and vision benefits are easy to understand, contain maximum benefit amounts, and only require small co-pays at the time of service. One of the benefits we encourage our clients to use is the legal services coverage if it is currently available. According to aarp.org, 78% of Millenials and 64% of Gen Xers lack a will, which is one of the most basic instruments in financial planning. Even celebrities have passed without proper estate planning, including the late Jimi Hendrix, Bob Marley, and DMX. The average cost of a family trust with proper estate planning documents varies, with some estimates pricing at $1,500 to $5,000 depending on complexity. Legal plans that are offered through a job provide an inexpensive way to prepare those documents. The premiums typically range from $6 to $20 per pay period.
Don’t have coverage through work or self-employment? The Biden administration extended the open enrollment window from February 11th through May 15th, 2021. Individuals who are not covered by a work-sponsored plan can enroll with a plan offered through the marketplace via the Affordable Healthcare Act. Depending on income, location, and family size, some individuals may qualify for a federal subsidy to offset the premium costs.
As always, we recommend that you contact your trusted advisors to discuss these topics. Feel free to reach out to Sun Valley Financial to review your benefits package or ask about enrolling in health coverage.