It’s that time of year again! It’s open enrollment season for employees as well as health insurance consumers who buy coverage on state exchanges under Obamacare. Here are a few things to keep in mind before blindly choosing the cheapest option or just electing the same benefits as last year:
Whether you’re covered by your employer’s health insurance or you’re buying it through the exchanges, it’s always a good idea to review your options and shop around. If you have a favorite doctor or hospital, it’s definitely a good idea to double check whether they’re still in-network.
As for specifics plans, you’ll want to balance your health care needs with out of pocket costs. How many times did your family see the doctor last year? Are you planning any major procedures for the upcoming year? Out of pocket costs include your monthly premiums, copays, and deductibles.
Two tax-advantaged ways to help pay for out of pocket medical expenses include health savings accounts (HSA) and flexible spending accounts (FSA). Keep in mind that you can only have one account or the other. But to keep things interesting, some employers offer Limited Purpose Flexible Spending Accounts which can be used for Vision and Dental medical expenses. This type of Flexible Spending Account can be paired with an HSA.
This is an awesome calculator to help you decide between a traditional plan and a high deductible health plan (HDPH) with a health savings account.
Tip for new parents: While you’ll obviously want to add your children to your medical plan, what about vision and dental? A baby’s first tooth doesn’t come in until they’re 4 or 6 months old, so there won’t be much for the dentist to examine right away. We added our daughter to our dental plan once the next open enrollment season rolled around vs. when she was born. Her first dentist appointment was when she was about one year old. And even then, it was just about getting used to visit the dentist. She didn’t have a proper tooth cleaning at the dentist until she was three years old. As for the vision plan, some are tied to medical plans. In either case, get a recommendation on timing of first visits from your dentist or eye doctor.
Health Savings Account
If you participate in an HDHP, you’re eligible to contribute to an HSA. An HSA allows account owners to pay for current eligible medical expenses, deductibles, and co-insurance while also saving for those in the future. To qualify as a HDHP, the following requirements must be met:
- Minimum deductible: $1,250 individual; $2,500 family
- Out-of-pocket maximum (includes deductible): $5,000 individual; $10,000 family
- No services paid for prior to meeting deductible (except for preventive care)
- No deductible required for preventive care
- For family coverage: family deductible must be met before any reimbursement can be made
- No prescription drug copayments
- Higher limits allowed for non-participating provider services
HSA account owners enrolled in an HDHP can save pre-tax dollars in the amount of $3,400 for an individual and $6,750 for a family in 2017. One of the benefits of a Health Savings Account is if you don’t use the money during the year for qualified medical expenses, the money is rolled over indefinitely and can even be invested within the HSA.
Which leads me to the three awesome tax benefits of an HSA:
- As I mentioned, contributions are tax-deductible, or if made through a payroll deduction, they are pretax.
- The interest earned is tax-free.
- Account owners may make tax-free withdrawals for qualified medical expenses.
Flexible Spending Accounts
If you don’t have a HDHP + HSA, your employer benefits may include an FSA for healthcare costs. An FSA allows an employee who is enrolled in a traditional health care plan, not a high-deductible plan, to put away pre-tax dollars in the amount of $2,600 in 2017. The catch with the FSA is if you don’t use the funds in the given plan year – you lose them. However, most employers offer a grace period of about 2.5 months to spend any unused funds, or the ability to roll over $500 to the next plan year.
Parents with children in daycare or after school programs (for children up to their 13th birthday) should also remember to re-enroll in the dependent care FSA account. These accounts can also be used to reimburse you for services provided to other family or household members who meet certain dependent eligibility requirements (i.e. the household member is physically or mentally incapable of self-care and live with you for more than half the year). Contributions are also made with pre-tax dollar up to $5,000 in 2017. Please note that if you are married and filing a joint tax return, this is the combined contribution total between you and your spouse. If you’re married and file separately, an individual spouse can contribute $2,500.
Tip for expectant parents: If you expect to have child care expenses in the upcoming year, it’s a good idea to start contributing to a dependent care FSA account as of the beginning of the year to spread out the payroll deductions. But even if you forget to enroll or find out you’re expecting after open enrollment, you can always enroll once the baby is born.
Life and Disability Insurance
Your employer might also offer group and supplemental life and disability insurance. Unfortunately, life insurance purchased through your job doesn’t come with you. Plus, that group policy might not provide enough coverage. So you’re better off buying an individual policy and think of your group policy through work as an added layer of financial protection.
If you need to put together simple estate documents, an employer group legal plan is a great place to start. The premiums are generally $20/month. But if you need something a little more complicated, plan on reaching out to an attorney who specializes in estate planning.
Your employer may also allow you to deduct pre-tax dollars from your paycheck for qualified transportation benefits. The monthly dollar limits for tax-excludable transit and parking benefits, for tax years beginning in 2017 are $255.
Finally, employers may also provide adoption assistance programs. Per the Society for Human Resource Management, for qualified adoption assistance programs, the maximum amount excludable from federal income tax withholding in 2017 for reimbursements related to the adoption of a child, limited to necessary and reasonable expenses, is shown below. The excludable amount phases out for taxpayers with modified adjusted gross income that exceeds certain levels:
|Phase-out income thresholds|
Check on your retirement accounts
While open enrollment doesn’t apply to retirement accounts, it’s a great time of year to check on your progress. Are you getting the full employer match in your 401(k)? Can you afford to increase your contribution percentage? Do your investments need to be rebalanced?
What if life changes after open enrollment?
Finally, change happens. If you have a qualifying life event that lead to a loss or change in coverage during the middle of the year (think marriage, divorce, job change, new baby, adoption, death of spouse), you have a 30 day window to update your benefits.