It’s open enrollment time again for insurance and benefits for the following year. With all this talk about health insurance costs going up and benefits going down, I’m surprised to see my total insurance and benefits costs hover the same at around $150 a month for an individual. I looked carefully at each line item and compared it to the previous year, and the costs are only about $5 dollars a month higher.
Your company benefits have real value that is calculated as part of your total compensation, so pay attention and maximize these benefits to your full advantage. The deadline to enroll is usually by mid-December, otherwise what you have now *might* get carried forward to the next year except for some discretionary flex spending decisions, which reset to zero. You don’t want to die an expensive death for your loved ones just because you forgot to enroll and didn’t understand what the term “excess liability insurance” means! Get thinking and get cracking!
THE INSURANCE AND BENEFITS CHECK LIST
* Medical: Go with either a PPO (Preferred Provider Organization) or a HMO (Health Maintenance Organization) provider. The main difference between the two is that the PPO does not require you to choose a Primary Care Physician (PCP) to coordinate and refer other Specialists in your network. As a PPO client, you do not need a referral to see other doctors in your preferred network, which generally provides you more choices than a HMO network. In other words, a PPO is more flexible and provides a better selection of doctors and therefore costs more.
Another interesting thing I see is the difference between co-pay and co-insurance. Co-pay is where you always have a fixed payment every time you see the doctor, no matter how much your medical services cost. Co-insurance is when you share a certain percentage of the medical cost. In general, co-pay results in more expensive monthly premiums than co-insurance. If you had a $1,000 knee operation for example, your co-pay may be just $50 bucks, but with co-insurance, you may have to pay 20% of the entire cost, or $200.
If you feel you may have higher medical expenses in the coming year, the easiest rule is to go with higher premiums because that generally means higher coverage and less out of pocket expense. Of course, don’t forget to ask your provider for clarification. I go with a PPO and co-pay rather than an HMO with co-insurance which costs less if you don’t get injured or sick. Cost: $40-$80 a month pre-tax.
* Health Care Flexible Spending Account: If you anticipate something major, like knee surgery or corrective vision surgery, you can elect up to $10,000 to use for a FSA (government plans to reduce to $2,500 limit beginning in $2,500 so get sick now!) All contribution is pre-tax, which saves you your highest marginal tax rate amount. I’ve averaged around $500 a year for stuff, but am wondering if saving $150-$200 a year in taxes is a waste of time given I’ve got to fill out paperwork with each receipt to get a reimbursement. Each person’s threshold is different, so weigh the costs of spending time filling forms, faxing, and waiting vs. the tax money saved. Don’t overbudget the annual amount either, otherwise whatever you don’t spend, you lose.
* Dental: Pretty straightforward and a necessity. Many different plans with different benefits and deductibles. Mine provides two cleanings a year, and 70% coverage on dental work with a $100 deductible a year for $8 bucks. Nothing is ever really “free”, so watch those deductible costs!
* Vision: Provides discounts for eye examination, eye-wear, and contacts. Those with perfect vision should still opt-in as it costs around $3-$5/month. I like to get my eyes checked out once a year since I’m on the computer so much. I don’t want no detached retina or glaucoma to sneek up on me. No eye-sight, no driving, no work, no blog.
* Basic Life: A token amount of term life insurance that is generally free. My firm provides $50,000.
* Supplemental Life: More term life insurance that is usually a multiple of your base salary (1X – 10X is common). $1,000,000 a year costs less than $20/month and goes up in pretty correlated increments from there. The amount of supplemental life you need is determined by the amount your dependent needs to pay both your bills without having to worry. The amount is subjective, but I would shoot for at least 5 years of total expenses i.e. add up all expenses such as rent, food, mortgage, travel for the year, and multiply it by 5. This is why you need at least a rough budget! Access free life insurance quotes from PolicyGenius today.
* Personal Accident Insurance: Generally also provided for free by your company if you are in an accident that’s non-travel related and die on the job. I’ve seen ranges of $100,000 to $1,000,000, so best to find out what yours is.
* Excess Liability Insurance: Also called an umbrella policy which is very important if you have lots of assets which are exposed if you get sued. Simply calculate your net worth and get a umbrella policy that’s 50% over your net worth amount to be safe. Cost is usually around $100 per $1,000,000 of coverage a year. Click the link to read more about how an umbrella policy works. This is very important, especially for those with teenagers!
* Short Term Disability: If you are a construction worker and injure your back and can’t work beyond the amount of your sick leave, short term disability kicks in. STD (!) provides you with 60% of wages for usually six months, but varies from company to company. Price is generally free to a very minimal amount ($5-10/month) if there is cost at all. Generally there should not be.
* Long Term Disability: Kicks in after you exhaust short term disability and is there to protect you from catastrophic injury or illness. LTD also provides 60% of monthly eligible earnings after short-term disability runs out. You generally always want a policy that lasts until you are 65, because some may only last 5 to 10 years. Call your health insurance provider and ask. Costs generally run from $10-$60/month after-tax depending on how much you make. 60% of $50,000 a year costs much less than 60% of a $500,000 a year salary for example, hence will cost more. But that’s OK, since you’re making more.
* IRA: An incredibly petty savings tool of $5,000 a year in after-tax contribution that is only available for people with adjusted gross incomes of less than $66,000 as a single and $110,00 if filed jointly. For ROTH IRAs where you pay tax up front, the income limits get a little better to $122,000 AGI for a single and $179,000 for joint filing. The government needs to raise the income limits for contribution and raise the contribution amount.
* 401k: Understand what your company matches for free and by golly contribute at least that amount every year! Let’s get real. Even $16,500 a year for the next 30 years is likely not enough money for you to be able to retire on, so at the very least, contribute the max. I recommend spreading the $16,500 contribution amount out over 12 months which equates to a $1,375 pre-tax deduction every month as it is less painful and easier to adjust your lifestyle accordingly. Furthermore, who knows exactly where your investments will be throughout the year, so you might as well leg-in slowly and consistently.
ADDING ALL THE INSURANCE OPTIONS ALL UP
Completing your open enrollment should give you further appreciation of your firm as well as remind you of how fortunate you are to have a job. Literally millions of people don’t have insurance not out of choice, which means any unfortunate mishap could send them to poverty.
The value of your health care insurance and other benefits per year can simply be calculated by how much it would cost if you had to pay for everything on your own. The numbers are not pretty. Make sure you don’t take for granted all the benefits your company provides, and fill out the form before the deadline. The most important thing you can do is educate yourself and your family about all your company’s benefits and pick up the phone and ask your Benefits personnel questions if you are unclear about anything.
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Updated for 2018 and beyond.
Sandy - yesiamcheap says
The cartoon alone had me laughing! That was brilliant. Thanks for the reminder to put some money into my flex spending for ratchet up my insurance for open enrollment.
Darwin's Money says
I signed up for ours with disgust last week seeing a 43% increase in health care premiums (so absurd, that was my post this weekend). On FSA, we’re at like $2500-$3000 each year due to the expenses our family incurs. The fact that the administration keeps clamping down on FSAs by limiting contributions and then even excluding items that used to be reimbursed like OTC medicines is a shame. That’s Hope we can believe in!
Financial Samurai says
4 more years Darwin! You can bank on it!
43% increase is absurd. Talk to your HR. That sounds completely wrong.
The College Investor says
Great post, you have to take advantage of open enrollment!
Roshawn @ Watson Inc says
“The value of your health care insurance and other benefits per year can simply be calculated by how much it would cost if you had to pay for everything on your own. The numbers are not pretty.”
You know, I really couldn’t agree more. My costs have remained the same, and I am very grateful!
Ken @ Spruce Up Your Finances says
On the Health Care Flexible Spending Account, some of the over-the-counter drugs and medicines will no longer be reimbursable effective January 1, 2011. This is due to the Health Reform Act.
I recently wrote a post on the sample OTC that were affected at:
Ken @Spruce Up Your Finances says
Just to elaborate on the non-reimbursable, when claiming OTC drugs and medicines for reimbursement, the individual must now provide a physician statement and in most cases, this could be the prescription. Before January 1, 2011, individuals can claim those OTC without any supporting documentation from the doctor.
This is an awesome post! Thanks for all of the tips. I’m trying to figure out how much to allocate for Flex spending right now. Note – the govt changed a lot of rules for what is flex eligible in 2011 so talk to your benefits provider before you submit your 2011 allocations! OTC meds now require a doctor’s prescription!! So no more claims for allergy medicine, aspirin, tums, tylenol without a prescription!
Financial Samurai says
Glad you found it helpful! I’m surprised more people aren’t discussing healthcare and benefits. The topic is so important! Espcially to understand what the heck everything means! If people don’t care and stay on top of healthcare and all the changes, they are missing out. What a shame.
Barb Friedberg says
Sam, You did a really comprehensive job of going through the details of the insurance maze. This is one of the most confusing personal finance topics aroung. It’s a good analogy to remind readers that this benefit is something that translates to “real money.”
Money Reasons says
We just finished our Benefits enrollment too.
Every year it gets more expensive and covers less and less… We’ve had an HSA for the last few years, and it’s a cheaper way to go once you have enough in it to cover the maximum payout for our pocket ($5,000 or $6,000)…
I think FSA’s are capped at $2500 for 2011. Mine is anyway. And you can’t use up any left overs on OTC meds anymore either :(
Financial Samurai says
Donno, my firm is 10k contribution cap. The $2,500 you mention goes into efelfect in 2013 I believe. Double check with your benefits personnel.
Ken @ Spruce Up Your Finances says
Sam, I think you’re right. The $2,500 cap will take effect on January 1, 2013. Another tax benefit taken away, or in this case reduced, by the government.
First Gen American says
Either you are really young or you have fabulous benefits. Mine are at least double yours for life and medical.
Financial Samurai says
$150/month is for a single person. Add 70% more for a dependent and double for a family of 3. Just trying to make it as much apples to apples as possible with one person.