Dear Readers: As we approach open enrollment, I’m hoping every single one of you will take the time to carefully review your choices. There’s no question that employee benefits are always a significant part of your financial life. But this year, as millions of Americans face health and financial challenges as a result of the COVID-19 pandemic, they may well be more important than ever.
So don’t just assume that what worked in the past is what’s best for you now. Use open enrollment to thoughtfully evaluate your options.
Health Insurance: Important to Review Yearly
You never want to be complacent about health insurance, but especially not in the middle of a pandemic. If you’re lucky enough to have health insurance through your employer, make sure you’re getting the most comprehensive coverage you can afford.
For instance, do you have a choice between a preferred provider organization (PPO) and a health maintenance organization (HMO)? A PPO usually offers more flexibility, while an HMO may have lower monthly premiums and additional benefits in exchange for getting health care services within a plan’s provider network. It’s worthwhile to do a thorough cost comparison of each including premiums, deductibles, copayments, co-insurance, and out-of-pocket maximums.
If you have a high-deductible health plan (HDHP) ($1,400 for an individual, $2,800 for a family in both 2020 and 2021), look into getting a health savings account (HSA). An HSA operates somewhat like an IRA for medical expenses. For 2021, the annual limit on tax-deductible contributions is $7,200 for a family and $3,600 for individuals with self-only coverage, with a $1,000 catch-up contribution for age 55-plus.
In addition to the upfront tax deduction, money can be withdrawn from an HSA tax-free for qualified medical expenses including deductibles, copayments, prescriptions, and fees for medical services. Plus, there’s no “use it or lose it” annual catch as there is with a flexible spending account (FSA). (However, an FSA allows you to pay for certain medical or dependent care expenses with pre-tax dollars.) Unused money in an HSA can continue to grow tax-deferred for health care costs in the future, and you’ll often have a number of investment choices to help your money grow and keep up with the rising cost of health care.
As you review your choices, be sure to coordinate with your spouse or partner. If you have different options between employer plans, choose carefully. You might even be able to mix and match. For instance, one plan may offer low-cost vision or dental coverage that the other doesn’t. All this research takes some effort, but it’s absolutely worth it.
Life Insurance: The Good, the Bad, and the Difficult
Group term life insurance is a good news/bad news story. On the plus side, employees are often offered some level of basic coverage either for free or at a reduced cost, and you’re not required to undergo a physical exam to qualify.
On the downside, the basic coverage may not be sufficient, especially if you have a partner or young children who depend on you financially. In that case, consider a supplemental group policy or an individual policy.
Individual life insurance coverage can be more cost-effective if you’re in above-average health, and it’s often customizable to fit unique needs. If you’re in poor health, be aware that it may be difficult to qualify for private coverage.
But don’t stop there. Speak to an insurance specialist for more assistance in figuring out what amount and type of life insurance coverage makes the most sense.
If you do go with a group policy, find out if you could take the policy with you should you leave your job. While group policies are generally portable, there’s usually a short widow of opportunity to keep it, and there are usually other restrictions.
Disability Insurance: Dealing With the Odds
Disability is more likely than death. In fact, it’s estimated that more than 1 in 4 of today’s 20-year-olds will become disabled before they retire. What will you do if you can’t work?
First, check to see if your company offers disability insurance and what kind. You may have just short-term coverage (up to two years). Even if you have long-term coverage, it may not be enough. Plus, disability insurance through your employer is generally not portable and will lapse when you leave the company.
But don’t let that stop you. By all means, take your company’s policy, especially if it’s free. Then, as an extra precaution, consider purchasing a private disability policy to cover at least 55 percent of your salary for 12 months.
Don’t Overlook Retirement
Annual enrollment is a great time to check in with your retirement goals. Are you on track? To me, contributing to a 401(k) up to the employer match is essential, and it’s the minimum you should do. The annual 401(k) contribution limit for both 2020 and 2021 is $19,500, with a $6,500 catch-up for age 50-plus. Use this time to increase your contribution as much as you can.
There May Be More
Check to see if your company package includes:
- A Dependent Care FSA: This lets you set aside pre-tax dollars up to a maximum of $5,000 per year per family as long as both spouses work, are looking for work, or are full-time students.
- Partner benefits: Some companies offer health insurance to domestic partners.
- Long-term care insurance: If offered, the most cost-effective time to purchase a policy is between ages 50 and 65.
- Group legal services: An employer may also offer basic legal services for a low monthly cost.
While we’re talking about open enrollment, I want to remind anyone with Medicare that Oct. 15 to Dec. 7, 2020, is your window of opportunity to make changes to Medicare Advantage and prescription drug plans.
Yes, it’s a lot of detail, but think of it this way: A benefits tune-up this fall could be the best foundation for your finances all year round.
Carrie Schwab-Pomerantz, a certified financial planner, is president of the Charles Schwab Foundation and author of “The Charles Schwab Guide to Finances After Fifty.”