As we approach the final months of 2020, many companies are preparing to kick off their employee benefits enrollment period. Open enrollment allows employees to change and renew their benefit options. Companies that were hit hard financially from COVID-19 are looking for ways to reduce costs, which means your benefits could be changing. Choosing the right mix of benefits for your family can be confusing and stressful. I will review a few items to consider as you navigate your 2021 benefit options.
For most employees, the largest piece of their benefits package is health insurance coverage. Unless you go through a qualifying event (e.g., marriage, divorce, or childbirth), open enrollment is the only time you can change your coverage each year. It's important to keep your individual and family medical needs in mind when considering how to pick a health insurance plan. As companies make significant changes to their benefits, your spouse's benefits may now be a better option.
- Sean Gould
Many companies now offer High-Deductible Health Plans (HDHP) to help reduce employees' monthly premiums, as the HDHP plans have higher deductibles and out-of-pocket expenses. An HDHP is typically combined with a Health Savings Account (HSA). Think of an HSA as a healthcare retirement account: Contributions are tax-deductible, earnings are tax-deferred, and withdrawals are tax-free when used for qualified medical expenses for your family. The maximum contribution amount for 2021 is $3,600 for individuals and $7,200 for families, and another $1,000 catch-up is allowed if you are over age 55. If your company offers a qualifying HDHP but not an HSA, you can open a separate HSA account with another provider.
Other health insurance plan options include the more common Preferred Provider Organization plan (PPO) or Health Maintenance Organizations (HMO). When deciding between a PPO (or HMO) and a HDHP, compare your expected annual healthcare expenses under a PPO to the HDHP premium savings and what your company contributes to your HSA. If you expect healthcare costs to be low for 2021 and have the cash flow to pay for unexpected medical costs, a HDHP combined with an HSA might be your best option. Any unused HSA balance rolls over each year. No matter which plan you chose, always confirm that your preferred doctors and hospitals are still in-network. Don't assume that your current providers are covered, as this can be a costly mistake if they are out-of-network.
Your company may provide a dependent care Flexible Spending Account (FSA). The FSA allows tax-free reimbursements for eligible daycare or custodial care expenses, including preschool and before-and-after school care for children under age 13. This account can also be used for adult dependents if they rely on you for their care. The maximum annual contribution is $5,000 per household, and like an HSA, contributions reduce your taxable income through payroll deductions. However, unlike the HSA, this account is use-it-or-lose-it, so if you do not use the funds by the end of the plan year, all funds in the account are forfeited.
Retirement plans are a valuable benefit that impact your future financial wellness. Most 401k plans allow changes throughout the year, but I recommend using the enrollment period to review your plan details, verify your beneficiaries, and revisit your selected investment mix. If your company offers a matching contribution, it would be wise to contribute at least enough to get the maximum match.
Determining the best coverages for your family during open enrollment can be challenging, but finding the right benefits mix can help you save a lot of money over the years. Take time to learn what your company is offering so you can maximize the benefits and avoid costly mistakes.
Sean Gould, CPA/PFS, CFP, is a Senior Wealth Strategist with Waddell & Associates.