In Open Enrollment, Diligence Reaps Big Benefits

Your choices can have a big effect on your wallet, so it's important to pay enough attention to do it right. What follows is a discussion of what you need to know to make the smartest decisions. If you just want to know the bare minimum, jump to the end of the article where it says "The Lazy Person's Guide to Open Enrollment."

*Health insurance. This is the Big Kahuna of open enrollment and probably the reason most employees hate open-enrollment season. It seems you either have too few choices or too many, and comparing all your alternatives seems difficult.

Unfortunately, there are no easy answers. But you can get plenty of helpful information about your options in the special report that appeared Sept. 25 in The Times' Health section. The section is reproduced at http://www.latimes.com/health. Click on 'Health Care: A Consumer's Guide.'

Here are the basics of what you need to consider:

In general, if you have health problems or children, a health maintenance organization may be your best choice. To help you pick which one, check out the rating service at http://www.ncqa.org.

If you're willing to pay extra to have more control, a point-of-service plan might be the better option. POS plans work like HMOs but allow you to use physicians outside the HMO network. (Before you pay for a POS plan, though, see if the physicians you want to use are within your HMO network. You might not need to pay more if they are.)

If you're in great health, have no kids and rarely go to the doctor, consider the catastrophic plan if your company offers one. You pay for all routine medical visits and exams but are insured against huge hospital bills if disaster should strike. In return for a high deductible, your premiums can be as low as a few dollars a month.

You can use last year's expenses to help determine whether vision and dental coverage make sense to you. If you had the coverage, consider what your out-of-pocket costs would have been without it. Balance that against the premiums you'll pay to decide whether to sign up for the insurance. The big exception: If you expect to need major dental work or have serious eye problems, the insurance usually makes sense regardless of what you've spent in the past.

If your partner has health benefits, you'll want to coordinate your coverage. It may be cheaper to use one partner's health insurance to cover both, or you may opt to keep coverage separate. Crunch the numbers to see which makes sense.

Generally, your employer will continue the coverage you have this year if you fail to choose another option. If your current option is no longer available, however, you could get dumped into another plan--one that you might not like.

*Domestic partner benefits. This option extends health and other benefit coverage to an employee's unmarried partner. Premiums for the additional coverage are usually not tax-deductible, and the amount the employer pays for the partner's benefit is typically added to the employee's taxable income. For more information, see the domestic benefits story elsewhere in this section.

*Flexible spending account. Pay attention here; this is a valuable benefit for most workers.

Flexible spending accounts go by other names, including tax-saver plans, tax-free spending accounts and 125(c) accounts. The idea is the same: You put aside pretax money throughout the year to pay for child-care costs or for medical expenses that aren't reimbursed by insurance. (If you have both types of expenses, you'll need an account for each; you can't use child-care money to pay medical expenses, or vice versa.) If you're in the 28% federal and 8% state tax brackets, contributing $5,000 to a flexible spending account could save you nearly $1,700 in taxes.

One drawback is that you lose any money in the account that isn't used for qualified expenses. You want to make sure you estimate fairly accurately, and that you spend any money left in the account by year's end. (You can do that by purchasing an extra pair of glasses, scheduling an elective procedure or hiring your child-care provider while you work a few extra hours, depending on the type of account and your individual situation.)

You should also consult a tax advisor before using a flexible spending account for child-care expenses, because the account can interfere with your ability to take a tax credit for the same costs. For many families, the account will be a better deal, but it pays to make sure.

Not sure how much to set aside? Estimate using this year's expenses, and add any additional costs you're likely to face--such as a little psychotherapy to get over the trauma of open enrollment.

New or expectant parents might want to talk to co-workers about the kinds of child-care costs they're likely to encounter so they're better able to estimate expenses for a child-care account.

Warning: This benefit requires you to sign up each year. If you miss the deadline, you're out of luck until the next enrollment period comes around. You can make some changes in a child-care tax saver account if you have or adopt another child; ask your human resources office for details.