*While this post is long, it is certainly worth spending a little extra time reading.
Fall is a very important time of year to review your overall financial health. The inevitable annual enrollment period is now upon us. While this may seem automatic for most individuals, we recommend taking a little extra time this year to understand your options and possibly save some money in the process.Background Health costs and benefits have significantly shifted over the last decade. Most insurance plans have now morphed into more of a cost-sharing format, where individuals have a higher stake in what medical care they receive. The downside of this transition is each individual is now responsible to know more about their personal health and health costs than they ever had to in the past. This is similar to the shift from pensions to 401k, where risks are more heavily placed on the individual instead of the employer/insurance company.
Understanding Your Situation We recommend looking at what upcoming (known) drug and medical visits you expect for the 2019 calendar year. Are these going to be costly or is everything routine? Just like risk in a portfolio, there is risk in the health care plan that you select. If you select the “Cadillac” plan, you may end up paying for benefits that you don’t need or won’t use. In turn, if you opt for the lowest level of coverage, your savings in premiums may be eclipsed by excess out-of-pocket medical expenses. In general, you should weigh your personal health situation and compare the risks/returns of buying a more/less expensive plan.
*I think as a whole, we are accustomed to plans with a high level of benefit where we may not use all of those benefits.
Other Benefits for Employees/Self-Employed Individuals For individuals under 65, and especially those working, below are a few items that are worth a second glance as part of the annual enrollment process.
Health Savings Accounts (HSA)- If you have a high deductible health care plan, then saving into an HSA on a pre-tax basis is a great investment. The maximum limits for individual/family HSA contributions for 2019 are $3,500/$7,000 respectively.
Group Life Insurance – An easy option to obtain life insurance benefits. While pricing on individual term life insurance policy may be lower, group life insurance benefits are easy to start at annual enrollment time and may provide life insurance benefits if you are not able to qualify elsewhere. Caution is also warranted with group life insurance as the premium is usually tied to your age and the policy may not be portable (able to take with you if you switch jobs).
Group Disability Insurance – Another benefit that many employers offer. In general, we are more likely to be disabled during our working years than pass away, so we recommend group disability insurance if it is available.
Dependent Care Spending Account – Employers also have the ability to provide a pre-tax savings account used to pay for childcare expenses. A household is able to save $5,000 in 2019 to offset daycare expenses. In a 25% tax bracket, this is a $1,250/year savings.
401(k)/403(b) Contributions – While not distinctly part of the annual enrollment, now is the time to bump up your retirement savings by 2%. Most people don’t notice the increase in their day-to-day lifestyle, but it certainly has a large impact on retirement savings.
For Retirees on Medicare The open enrollment period for Medicare is from October 15th to December 7ththis year. During this time period, you have the option to make changes to your current benefits or even switch from a Medicare supplement plan to a Medicare Advantage.
A great resource that fully explains Medicare and various supplement/advantage options can be found at on the AARP website.
Bottom Line Annually, we make quick and often not well-thought-out decisions on the level of medical benefits we need. These decisions have significant risks and can cost or save thousands of dollars a year and is certainly worth a little extra time and care. If you have any questions, BPC Advisors can either answer them or refer you to a qualified resource that can also help.