In Open Enrollment, Diligence Reaps Big Benefits

If you work for a large employer, the dreaded open-enrollment packet is about to land in your mailbox--if it’s not there already, taking up all available space.

The fat packet details the choices you’re allowed to make regarding your workplace benefits, and it’s not an illusion that the options seem to increase each year. In an effort to customize benefits for all kinds of people--single, partnered, with children and without--companies are offering a far wider array of choices than they did 10 years ago.

In addition, employers are once again struggling with higher health insurance costs, meaning many are making changes to the medical plans they offer.

Your choices can have a big effect on your wallet, so it’s important to pay enough attention to do it right. Here’s what you need to know, and what decisions you absolutely have to make:

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 https://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 https://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 Sept. 24 article on this subject at https://www.latimes.com/workplace.

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 for a few extra evenings, 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. If you’ve been thinking about paying for cosmetic dental work, for example, include an estimate of those costs in determining how much to put in your medical expense account.

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.

If your spouse has a flexible spending account at work too, you can take advantage of both plans and each contribute up to the maximum of $5,000 per account annually.

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.

Life insurance. Your company may already provide you some coverage automatically--typically one year’s salary or less. But chances are good that if you really need life insurance, you need more than that.

First determine whether you need life insurance. If you have no one who is financially dependent on you, such as minor children or a spouse who needs your income to pay the bills, there is usually no reason to buy coverage.

If you do need coverage, you’ll find opinions vary on how much you should buy. You may have heard rules of thumb, such as buying five to eight times your annual income.

A smarter way to buy insurance, however, is to look at your actual expenses, subtract your income and figure out how long your family would need insurance to fill the gap. (For help, see the accompanying story, or check out the work sheet online at https://www.latimes.com/insure101. Click on “Lesson 1: Do You Need It?” Then click on the link labeled “Calculating Your Need.”)

Once you know how much insurance you need, do a little comparison shopping. If you’re younger than most of your co-workers and in excellent health, you could get a better deal buying an individual policy on your own. Web sites such as Quotesmith at https://www.quotesmith.com and InsWeb at https://www.insweb.com, among others, offer a way to shop for coverage.

Some plans offer the option of investing in a cash-value policy, which offers an investment account in addition to the death benefit.

Generally, cash-value policies aren’t suitable for people who haven’t exhausted other tax-deferred ways to save, such as maxing out their 401(k) contributions and fully funding Roth IRA accounts. For more information, visit https://www.latimes.com/insure101.

Disability insurance. Most workers need this coverage, but many don’t have it--perhaps because many people underestimate the financial chaos that can ensue if they are injured and unable to work.

Workers’ compensation covers only on-the-job injuries--not falls from a ladder or other mishaps at home. Social Security disability benefits are difficult to get and relatively few people qualify. Long-term disability insurance is usually the best way to make sure the mortgage gets paid and groceries get bought if a disability lasts more than a few weeks.

Your employer may automatically supply you with this benefit (and pay the premiums), but others expect you to fork over the money if you choose the coverage. The silver lining: If you pay the premiums, the benefit would be free of income taxes, which is not true if the coverage is employer-paid.

If you’re not sure whether you have long-term disability coverage, ask. Sometimes it’s included as part of your pension benefit. You should also find out how much of your income is replaced under the policy. Ideally, your coverage would replace at least 60% of what you make now.

Long-term-care insurance. Long-term-care insurance pays for the kinds of custodial care--help with bathing, eating, dressing and so on--that are typically not covered by traditional health insurance or Medicare, the government health insurance plan for seniors. Long-term-care policies can pay for nursing home care, home care or both.

This kind of coverage is new enough that financial planners disagree about who should buy it and when. Generally, people with few assets and those who are well off--say more than $1 million in investment assets--may not need the insurance. In addition, many planners believe it should not be purchased before age 55 or so. Also, if you must choose between disability and long-term-care insurance, many planners would recommend buying the disability coverage.

If you’re interested in long-term-care insurance, United Seniors Health Cooperative, at (202) 479-6615 or https://ushc-online.org, offers a 100-page guide, “Long-Term Care Planning: A Dollar & Sense Guide,” for $18.50.

Other coverage: Employers may provide a raft of other options, including prepaid legal services, financial planning help, access to health facilities, child-care assistance and group auto insurance.

In each case, you’ll need to weigh the cost of each benefit against the likelihood you’ll use it and how much you would pay to buy the service or coverage on your own.

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The Lazy Person’s Guide to Open Enrollment

Savvy employees will take the time to read the benefits information provided by their companies and to consider the choices carefully. If you run out of time or simply can’t face the paperwork, here’s a must-do list:

1. Sign up for the flexible spending account. This tax break is too valuable for most workers to pass up if they have any child-care costs or medical expenses that aren’t reimbursed by insurance.

2. Get disability insurance. Aim for coverage that replaces at least 60% of your income.

3. Pick a health plan, any health plan. You’ll want to be insured against huge medical bills.

4. Consider life insurance. If someone depends on you financially--minor children, a spouse, elderly parents--you probably need some coverage. If you do need life insurance, get at least two times your annual salary. Better yet, use the information at https://www.latimes.com/insure101 to get a better handle on how much you need.

5. Don’t miss the deadline. Once open enrollment ends, you basically have to wait another year to change your benefits choices.

Source: Times research

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This work sheet can help you decide how much insurance you’ll need. W4