It’s Time to Review Your Benefits
By Kaitlin Nicholis, Certified Financial Planner (CFP®)
The beginning of the fourth quarter is a great time to start planning for the year ahead. It is also when most companies have open enrollment for next year’s health, dental & vision insurance benefits. If you tend to stick with the same health plan every year, you may be paying more in premiums than you need to be and missing out on other benefits, like a Health Savings Account. With employer health costs predicted to rise 8.5% in 20241, now is a great time to review your current benefits and make sure you are choosing the right plan for you.
One way to prepare for open enrollment is to review your out-of-pocket health care expenses for the current year. Most insurers make this easily accessible when you log-in on the website. The deductible is the amount you will pay per year for medical bills before your plan starts sharing the cost. As with most insurance, the lower the deductible, the higher the monthly premium cost. If you find that your out-of-pocket expenses are low (perhaps you will not even reach the deductible this year), and you do not anticipate any major changes to your health in the year ahead, then you might consider switching to a High Deductible Health Plan. The advantages of a High Deductible Health Plan are that you will pay less in premiums, which means more money in your pocket, and you can save and invest in a Health Savings Account (or HSA).
A Health Savings Account is an investment account that allows you to save pre-tax dollars, which grow tax-free and can be used tax-free to pay for health care-related expenses either now or in the future. Unlike money in a Flexible Spending Account which must be used before the end of the calendar year, money saved in a Health Savings Account is not “use it or lose it.” As an added incentive, some employers may even offer a matching contribution to an HSA. If you’re not taking advantage of this benefit, you could be missing out on free money. The maximum HSA contribution in 2024 is $4,150 for self-only coverage and $8,300 for family coverage. If you’re 55 and older, you can contribute an additional $1,000 as a catch-up contribution2. Moreover, if you are a high-earner and already contributing the maximum to your retirement account, a Health Savings Account is another tax-advantaged way to boost your retirement savings.
For married couples, it may be more convenient to be covered under the same plan. However, be sure to review both your health plan options as well as your spouse’s and compare costs. Some employers my add a working spouse surcharge if your spouse has coverage available through his or her own employer3, so it could be less costly for each of you to be covered under your respective plan. If you have children, being covered under one plan could be beneficial, as you may reach the deductible and maximum out of pocket limits sooner than if you were covered separately.
Open enrollment is also the time to decide how much to put into a Flexible Spending Account (or FSA) for health care expenses, and for dependent care expenses. If you choose a health plan with a lower deductible, you may have the option to add pre-tax money to a Flexible Spending Account to pay for out-of-pocket health care expenses. The maximum you can put into a Health Care FSA for 2024 is $3,200. Remember, most of the funds in a healthcare FSA need to be used before the end of the calendar year, so plan accordingly. If you have dependents, you may also want to contribute pre-tax dollars to a Dependent Care FSA, which can be used to pay for daycare, camp, etc. The maximum you can contribute to a dependent care FSA for 2024 is $5,000.4
In addition to electing next year’s health, dental and vision insurance coverage, you may also have the option to choose supplemental life insurance coverage for yourself, a spouse, and children during open enrollment. Typically, employers will provide life insurance coverage up to 1-2x your salary as part of your benefits package. However, you may have the option to add-on additional life insurance coverage for a fee. Supplemental insurance through an employer plan may be less expensive than a private policy, and if you have health issues, you may have an easier time getting insured through an employer plan5. However, this insurance may not be portable, which means that if you leave your employer, you will lose your coverage. If the insurance is portable, the premiums could increase significantly if you convert it to an individual policy. If you are healthy and in need of additional life insurance coverage, a term insurance policy through a private carrier may be a better option in the long term.
Lastly, now is a good time to review your beneficiaries on your group life insurance as well as your retirement plans. If you recently got married, you may need to change your beneficiary to your spouse. Some states require that your spouse be your primary beneficiary or that your spouse provide written permission if you name someone else. Alternatively, if you recently got divorced, make sure you update your beneficiary. Even if your Will says otherwise, a beneficiary designation will override those intentions. If you recently had a baby, you may want to review your contingent or secondary beneficiary as well. Minor children under 18 cannot inherit assets directly, so it may make sense to set up a trust, which could be named as the beneficiary instead. A trust allows you to direct how the assets are used and who will oversee those assets until your child reaches the age of majority. While you can change your beneficiary at any time, the open enrollment period is a good reminder to review your beneficiary designations and ensure they are up to date.
In summary, below is a helpful checklist to prepare for open enrollment:
- Log-in to your insurer’s website and review your current year out-of-pocket health care expenses
- If your expenses are low, consider a High Deductible Health Plan with a Health Savings Account
- If you need additional life insurance coverage, shop around for a private policy before electing supplemental coverage through your employer
- Save on taxes by utilizing a pre-tax Health Care Flexible Spending Account for out-of-pocket health care expenses, and a Dependent Care Flexible Spending Account for childcare expenses
- Review your beneficiary designations on your group insurance policy and retirement accounts
- Need help? Contact a Marcum Wealth advisor
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