Open enrollment season is here for many workplaces across the country. Benefits selection is one of the most overlooked parts of a person’s financial plan. Open enrollment presents an opportunity to fine-tune and optimize your benefits based on your family’s specific needs and financial situation.
Open enrollment and all the choices that come along with it might make the process feel overwhelming or daunting — especially if you don’t know all the nuances of your benefits. In fact, one study found that only 14% of consumers were able to answer 4 multiple choice questions about basic components of traditional health insurance. Yikes!
At Fully Financial, we offer a full analysis for our clients’ workplace benefits, including optimal recommendations. This process starts by collecting information from our clients’ employers and thoroughly comparing the benefits offered with our clients’ unique needs, goals, and situation. We believe many of our clients find this adds a lot of value — not to mention takes some things off their plate!
To help you prepare for, better understand, and navigate open enrollment, we’ve put together a quick guide covering the most important things to consider when reviewing your benefit selections.
Before you dive into your specific benefits options, here’s a checklist to keep in mind as you go through the open enrollment process.
With this checklist at-the-ready, it’s time to take a careful look at the benefits you’re offered, compare the differences, and find the options that are right for you. Gather all your benefit information and give it a review. Some of the most common benefits include:
Let’s dive into some key considerations for each.
Health insurance is likely one of the most common things people think about when they consider workplace benefits. And for good reason: it’s expensive and very important. According to a recent survey from the private health foundation KFF, the average cost of a health insurance plan offered through an employer rose 7% in 2023. That’s the highest increase in more than a decade and amounts to roughly $500 more out of pocket medical expenses for families.
With this in mind, you want to make sure you’re making the best decision for you and your family when choosing your healthcare plan. When evaluating health insurance options (assuming you have options to choose from), there’s usually three main things to consider:
If you’re not familiar, the first two items above may seem like little more than alphabet soup. We’re going to break all of these down. As you consider each item, be mindful of some key plan details and your own situation, including:
A health maintenance organization, or HMO, offers medical care from a specific “network” of medical providers who have agreed to a reduced rate for their services. This is a lower price point than what someone would pay those same providers if they were not part of the HMO.
A preferred provider organization, or PPO, provides greater flexibility because you are less concerned about which providers are “in-network” or “out-of network.” That said, they can often be more expensive because they don’t have the same types of negotiated rates as “in-network” HMO providers.
In general:
When evaluating an HMO vs. a PPO plan, you should consider multiple factors, including premiums, co-pays, deductibles, out-of-pocket maximums, and in-network providers. People are often tempted to just choose the plan with the lowest premium, but they fail to look at the deductibles and copays.
Lower premiums often come with the trade-off of higher deductibles and less flexibility, so if you have a relatively high amount of medical expenses, it’s possible any savings you have on premiums will be more than offset by what you end up paying out-of-pocket before reaching your deductible.
All else equal, it’s oftentimes financially optimal to:
This is a bit oversimplified, of course, and there are other factors to think about specific to your situation. But this is a general starting point to help think critically about your medical insurance plan.
Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) are both great tax-advantaged accounts to help you pay for medical expenses using pre-tax dollars, but you should be aware of some key differences between the two.
HSAs are an account available to you if you have an HSA-eligible high deductible health plan. They’re a great tool to have in your retirement plan because they offer triple tax advantages:
This means you can put money in an HSA, deduct the contribution, grow it, use it, and never pay taxes on it.
Because of the tax benefits, HSAs are not only a great tool for minimizing tax liability today (when making contributions) but also a tremendous retirement planning tool. In retirement, you can use the assets — which, if invested, have likely benefited from compounding market growth throughout your career — to cover your medical expenses without facing any tax consequences.
The key differences between an HSA and FSA are:
Like HSAs, FSA contributions are pre-tax, so they will still lower your taxable income (even if the funds go unused).
For people with access to an HSA and the ability to afford health care costs out of pocket now (i.e., low healthcare costs), we almost always recommend contributing to an HSA because of its long-term tax advantages.
When it comes to HSAs and FSAs, here are the key things to consider during open enrollment:
Strange as it is, dental and vision insurance are separate from medical insurance. The cost of both is usually quite affordable, but you shouldn’t overpay for additional coverage if you don’t plan on needing it. When making your elections, take a close look at what’s covered and at what cost.
The most common benefit with dental and vision insurance is preventative care, like two cleanings a year of dental and a routine eye exam for vision.
Like medical insurance, you should review the coverage options to understand what the different costs are, as well as what you expect to spend on dental and vision expenses in the coming year.
For most people, we usually recommend basic dental and vision coverage so you can take advantage of the preventative care options. Vision insurance coverage also typically comes with an allowance to purchase frames, lenses, or contacts.
Disability insurance provides you with a percentage of your income if you are no longer able to work because of illness or injury. It comes in two basic forms: short-term and long-term disability. Disability insurance is oftentimes overlooked, but it is critical to the success of your financial plan. Some studies show that as many as 25% of U.S. workers will become disabled at some point during their working life.
We’ll start with the obvious: In general, if your employer offers some level of disability coverage at no cost, you should take it. Beyond that, you need to take a closer look at your specific situation to determine if supplemental coverage is needed and how much.
If you’ve built up a proper emergency fund, we typically do not suggest paying extra for short-disability coverage. That said, some employers offer their workers short-term disability coverage at no cost to the employee. In many cases, this will cover around three months of time off work due to a disability. With a proper emergency fund in place, this is more than adequate coverage for most people. Otherwise, you may want to consider paying for the necessary coverage if it isn’t covered by your employer.
For companies that do not have paid maternity leave, women who are considering having children may also enroll in short-term disability. Many policies cover childbirth under short-term disability and can help pay for unpaid time off after having children. You typically have to enroll in the policy prior to becoming pregnant, so you should add this coverage if that is a possibility.
Unlike short-term disability, everyone who is working needs to make sure they have proper long-term disability coverage, as it presents a far greater risk to the success of your financial plan.
Long-term disability coverage kicks in once short-term disability has run out and typically provides 50%-70% of your earned income all the way up to when you turn age 65. Imagine you’re planning to retire at age 65 and on track to do so, but you become disabled around age 50. With no long-term disability insurance, you lose out on the full amount of 15 years of earned wages — a huge hit to your financial plan. Long-term disability helps protect you in this situation.
We often find that buying long-term disability coverage through an employer’s group plan is much more affordable than buying an individual long-term disability plan. During open enrollment, we recommend making sure you are enrolled in long-term disability coverage and the coverage amount is at least 60% of your earned income.
One additional thing to pay close attention to with long-term disability: In some cases, your employer may offer to cover the cost of LTD premiums for you. When this happens, you should see if the employer can “gross up” the premiums, meaning you pay tax on the premium they pay for. By grossing up the premiums, your benefit would not be taxable in the event of disability. If the premiums are not grossed up, the benefit will be taxable, which will drastically reduce the take-home amount that you receive. If you pay your own LTD premiums, your premiums are typically paid with after-tax dollars, and your benefit will be tax-free. Be mindful of this when making your elections and determining how much coverage you really need, as the difference in after-tax benefits could be significant.
Here’s a hot take: Not everyone needs life insurance. But if you do, it’s important to make sure you have the right amount of coverage and appropriate type of policy for your family’s needs.
Many employers offer a limited amount of life insurance coverage to employees at no cost. For example, a common coverage amount is 1x your salary, up to $50,000. Take the free coverage.
For most people who are single, with no dependents, limited debt, and no legacy goals, this is often sufficient coverage. On the other hand, if you have dependents — that is, people who are depending on your income to sustain their livelihood — then you may consider adding supplemental coverage.
Unlike disability insurance, life insurance is often more affordable when you shop around and purchase an individual policy rather than enroll in your employer’s group life insurance plan. This also limits the risk of losing coverage if you unexpectedly lose your job. One caveat is if you have a pre-existing medical condition or poor medical history, in which case enrolling in your employer’s group life insurance plan may be more affordable and less stringent.
Some analysts suggest obtaining life insurance coverage that’s 10x your income if you are married with children and your spouse works or 20x your income if you are married with children and are the sole income-earner. This is a good starting point, but you (or your financial advisor!) should really do a more precise calculation based on how much your loved ones would need to meet their financial obligations and maintain their standard of living for a prolonged period of time if something happened to you. Some things to think about:
Although it is not directly related to open enrollment, this is a great time to take stock of your current retirement accounts. Specifically:
Open enrollment presents an opportunity to think holistically about your income and expenses (like healthcare costs and planned savings for retirement). If you’ve had a positive change in your cash flow, you may consider increasing contributions to your retirement accounts.
This is something that we manage and adjust for our clients each year, making sure that they are on track to meet their annual retirement account contribution goals and aware of the ever-changing contribution limits.
As with your retirement plan contributions, you can change your beneficiaries at any time. But while you’re already focused during open enrollment, this is a great opportunity to double-check everything is lined up the way you want.
Beneficiary designations on your retirement accounts and insurance policies are a critical piece of your overall estate plan. They help loved ones avoid probate and actually supersede your last will and testament.That means that whoever is named as your beneficiary is who will receive the assets in the event of your passing — regardless of what your will says.
Take this time to make sure your primary and contingent beneficiaries on your retirement accounts and life insurance policies align with your wishes.
Beyond the core benefits (medical, dental, vision, disability, and life), some employers also offer ancillary benefits that may be of interest to you. We typically recommend taking a close look at these to determine which ones are actually applicable and beneficial for you based on your preferences.
One of the main factors to consider here is cost. While it may sound nice to enroll in some of these “perks,” the cost may outweigh the value, meaning your money may be better spent elsewhere.
Take the time to think through how enrolling in these ancillary programs would bring value to you and if you should be paying for them through your paycheck. Some of them may present really great opportunities that add to your overall compensation.
Common benefits include:
Open enrollment is such an important process because it only comes around once a year, so it really is worth taking the time to think carefully about your elections. That said, there are some limited qualifying life events that allow you to change your benefits outside of the open enrollment period.
Some qualifying life events include:
Open enrollment is an important time of the year, and your benefit selections are a big part of your financial foundation and total compensation package. Remember to think of them that way! It is well worth your time to carefully review your situation and the full details of your benefits options, so you can make the choices that best support you and your family. Doing so will help you make sure you and your loved ones are adequately covered and your financial plan is protected and optimized.
If you’re unsure about which benefits or best for you, it might be helpful to consult with a financial planner. At Fully Financial, we do all the heavy lifting for our clients — sometimes helping them avoid costly mistakes and realize opportunities for savings and better protection. Because we provide holistic financial planning, we’re intimately familiar with their financial situation. So when open enrollment comes around, they simply forward us their benefits options from their employer, and we provide them with personalized recommendations for their unique needs.
If you’re interested in learning more about our services or potentially working with us, please reach out to us.
Fully Financial is a registered investment advisor offering advisory services in the State of Georgia and in other jurisdictions where exempt. This article is provided for educational, general information, and illustration purposes only and does not constitute specific investment advice. Registration with the United States Securities and Exchange Commission or any state securities authority does not imply a certain level of skill or training. We encourage you to consult a professional financial planner, accountant, and/or legal counsel for advice specific to your situation.
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