Last Updated: November 10, 2008
For many Americans November is not only the time to start shopping for holiday gifts, it's also the time to do another kind of shopping. Yes, it's open enrollment season. It's that special time of the year when millions of workers get to review their employee benefits and "shop" for health and pension plans that are right for them. To be sure, sorting through an ever-increasing number of choices isn't as fun as shopping for gifts for family and friends. In fact, it can be complex and difficult. So here's a look at what many workers can expect as they examine their 2009 employee benefit plans as well as some tips on how to pick the benefits that are right for you.
This year's menu of options will feature an increased emphasis on personal health behaviors as well as enhancements that give workers access to new health services and programs, benefit consultant, Randall Abott, senior health care consultant at Watson Wyatt Worldwide said in a recent release: "Employers are making great efforts to bring the dollar value of health care benefits into their employees' decision-making process. With more employers shifting to plans with higher deductibles, introducing health savings accounts and offering new incentives and penalties, employees will need to take a more active role in their plan management and evaluate which benefits are right for themselves and their families."
What are some of the trends employees can expect to see in their benefit packages during open enrollment? Watson Wyatt identified the following:
- Increased emphasis on improving personal health. The number of employers offering financial incentives to maintain healthy lifestyles or participate in wellness programs continues to grow.
- Value-based prescription drug benefits and a shift to co-insurance. Many employers are reducing copayments on certain prescription drug therapies that they recognize can help lower health costs and hospitalizations.
- Greater access to on-site clinics, retail clinics and health coaches. More employers will open on-site clinics for employees and their families next year, as well as give them greater access to retail medical clinics and personal health coaches.
- Health savings accounts (HSAs) linked to high-deductible health plans. One-third of large employers intend to offer workers health savings accounts linked to high-deductible health plans (HDHPs) next year, according to a Watson Wyatt survey.
- Full coverage or low copayments for preventive screenings and tests. More employers are covering preventive medical care and even preventive drugs at 100 percent with no deductible. Often included in these fully paid benefits are vaccinations, exams and screenings for early diagnosis of and intervention in breast, colon and cervical cancer. Many employers also provide coverage or partial reimbursement for blood pressure and cholesterol checks, and flu shots.
- Greater use of new media to communicate benefit information. Printed materials to communicate benefit choices to workers are being replaced or supplemented with Web sites, interactive Webcasts and other forms of social media dedicated exclusively to benefit enrollment information.
- Spousal surcharges. Many employers are now placing financial surcharges on employees whose working spouses have access to other health care coverage but who choose to keep them on their plan.
So given some of these trends, what should you consider if you are among those working Americans who have the ability to re-assess your health insurance, pension plans and the like?
Andy Smith, CFP®, senior partner with Cornerstone Financial Partners, suggests asking the following question: "Is there a better choice for health insurance?" Companies, as Watson Wyatt noted, are beginning to provide more choices including a Consumer-Driven Health Plan (CDHP) that combines a HDHP with a tax-advantaged HSA that can be used to pay deductibles and other out-of-pocket expenses.
"Generally, a HDHP does not cover first-dollar medical expenses," Smith said in a release. "For calendar year 2009, federal law requires a deductible of $1,150 for self-only coverage and $2,300 for family coverage with maximum annual out-of-pocket amounts of $5,800 for individuals and $11,600 for families." While the deductible must apply to all medical expenses, plans can pay for "preventive care" services from pre-natal care to annual physicals on a first-dollar basis, with or without a co-pay.
Often described as individual retirement accounts for medical expenses, Smith said in the release that tax-advantaged HSAs allow individuals choosing a high-deductible health insurance plan to deposit tax-deductible funds into an account to pay for current health care needs and save for future medical
bills. For 2009, the maximum annual HSA contribution for an eligible individual with self-only coverage is $3,000. For family coverage, the maximum annual HSA contribution for 2009 is $5,950. Individuals age 55 and older can also make an additional "catch-up" contribution of $1,000 in 2009. Contributions grow and are distributed tax-free for qualified medical expenses.
"To decide whether an HSA is right for you, begin by determining the difference between the premium of your current health insurance and the cost for the high-deductible plan necessary for an HSA," Smith said. "While you might expect the high-deductible plan to cost you 20 to 40 percent less, the savings
actually hover around 10 percent. Obviously, the HSA is most beneficial to those who can afford to sock away the maximum amount, pay for medical bills out of cash flow, and allow the HSA to grow tax-free to create a pool of tax-free money to pay for qualified medical expenses in retirement." Smith says employees should also weigh the tradeoff between having greater control over their healthcare and needing to dedicate more time to managing it. He says when a person enrolls in an HSA, the trustee provides a checkbook or debit card, or both, to pay for eligible expenses. "It's up to you to determine
what expenses are eligible — and to save all of your receipts in case you get audited by the Internal Revenue Service," Smith said.
Please Note: The IRS provides a list of approved expenses (PDF | 1MB); all else is subject to income taxes and a 10 percent penalty on that amount.
Flexible Spending Accounts
Smith also posed the question: "Are Flexible Spending Accounts (FSA) being fully utilized?" According to a 2005 study by Mercer Human Resource Consulting, 26 percent of employers with 10 or more employees offered a health care FSA, yet just 35 percent of eligible employees were participating. In addition to visits to the doctor, Smith said the cost of eyeglasses, dental work, psychologist visits, even cough syrup, can be accepted expenses through the plan. Some companies also offer a dependent care FSA which allows contributions up to $5,000 a year.
In 2005, Smith said the average contribution to a dependent care FSA was $2,630. An employee making $35,000 a year, who contributed $2,630, would see a net tax savings of $770. (The standard deduction and federal income tax are based on an individual claiming a deduction as head of household plus one
dependent under age 65).
Of note, FPA member Rob Schmansky, CFP®, Northern Financial Advisors, notes that FSAs have a use-it-or-lose-it provision. That means "any funds not used within the tax year are lost," he said. "If you expect to have higher eligible costs in a given year — for example you may be replacing your glasses every few years or making a major purchase like hearing aids — a little planning can save a lot in terms of taxes you won't have to pay," he said.
Life Insurance: If you've had a change in your family in the past year and missed the window to change your life insurance elections, Schmansky said now is the time. "Whenever changes in your family situation occur it is worth a second look to determine if the coverage amount is still appropriate," he said.
401(k): Is your 401(k) properly allocated? "For most workers, the 401(k) will be the primary source of income in retirement, so it's important to review your portfolio and rebalance when necessary," Smith said. Don't put your 401(k) on auto pilot and forget about it. Examine, for instance, what percent of your 401(k) is invested in company stock and adjust if the percent is too high. Also, examine your contribution. Consider contributing at least up to the company match. In essence, Smith said you want to review your portfolio to ensure your goals, timeframe and risk tolerance match your asset allocation.
Check out another article on FPA's Web site on the same topic: As Open Enrollment Approaches, Do a Benefit Checkup