It's Open Enrollment: Are You Making the Most of Your Employee Benefits?

Key Points

  • Employee benefits are an important part of your total compensation.

  • From health to life to disability insurance and a whole lot more, use Open Enrollment to make sure you understand and take advantage of what's offered.

  • A benefits tune-up this fall can be the best foundation for your finances all year round.

Dear Readers,

It's Open Enrollment time and I have a question for you: Are you taking full advantage of your employee benefits? To me, employee benefits play a significant part in your financial life and staying on top of what’s offered is as important as staying on top of your investments.

Open Enrollment gives you the opportunity to make sure you're maximizing what's offered. So don't just assume that what worked in the past is the best for the future. It is absolutely worth it to take the time to carefully review your choices.

Health insurance: One of the most important to review yearly

You never want to be complacent about health insurance, especially with healthcare costs—and insurance premiums—going up. If you’re lucky enough to have health insurance through your employer, make sure you're getting the best trade-off between comprehensive and cost-effective coverage. 

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 healthcare 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 ($1,400 for an individual, $2,800 for a family in 2020), check into a health savings account (HSA). An HSA operates somewhat like an IRA for medical expenses. For 2020, the annual limit on tax-deductible contributions is $7,100 for a family and $3,550 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In addition to the upfront tax deduction, money can be withdrawn from an HSA tax-free for qualified medical expenses including deductibles, copayments, prescriptions and fees for medical services.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 with a flexible spending account (FSA). Unused money 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 down side, the basic coverage is probably not 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. If you’re in above average health, a private policy could be very reasonable, but in either case you may have to go through additional underwriting that will often include a physical exam. 

If you go with a group policy, find out if you can 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, as well as other restrictions. 

If you're in poor health and have the choice of a group policy, go for it. But don’t stop there. Use an insurance needs calculator to help figure out if you require additional coverage. Then look into how to supplement what your employer offers. 

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 the minimum you should do. The current annual 401(k) contribution limit is $19,000 (going up to $19,500 in 2020) with a $6,000 catch-up for age 50 plus (going to $6,500 in 2020). 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 October 15 to December 7, 2019, 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 can be the best foundation for your finances all year round.


Have a personal finance question? Email us at Carrie cannot respond to questions directly, but your topic may be considered for a future article. For Schwab account questions and general inquiries, contact Schwab.

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