Open enrollment season is a confusing and stressful process for many workers, and high inflation is making this year’s benefit-selection period particularly fraught.
From health insurance to flexible-spending accounts, making the right choices can save you significant amounts of money, but it pays to do some research first.
Here’s a rundown of common employee benefits and what financial planners recommend keeping in mind as you evaluate them.
Health Insurance Plans
The basics: Many workers have to take whatever plan an employer offers, while others may need to choose between a preferred provider organization (PPO) or a high-deductible health plan (HDHP). You’ll generally pay higher premiums with a PPO but have a much lower deductible (the amount you have to pay out of pocket before coverage kicks in) than with high-deductible health plans.
In 2023, the IRS defines a HDHP as a plan with a deductible of at least $1,500 for a single person or $3,000 for a family.
The wrinkle: “A massive number choose the most expensive plan, assuming it’s best,” said Andrew Frend, head of strategy and analytics for Voya Financial’s employee benefits business. “People are still leery of high-deductible plans, even if they make the most sense, and overspending on health can come at a cost to emergency savings and retirement plans.”
To show how a pricier plan may not be worth it, financial planner Peter Palion, of Master Plan Advisory in East Norwich, New York, shared the example of a client in the metro New York area. The client was offered two plans, with a difference of about $1,000 in the deductible. A Cigna PPO was at the core of both, but the costlier plan reimbursed 50% of out-of-network costs, and the lower-cost plan didn’t reimburse any.
In locations where PPO networks aren’t extensive and your doctor isn’t in-network, the plan with out-of-network coverage might make sense, Palion said. In the New York metro area, most doctors accept Cigna, and there are many doctors to choose from, so for his client the pricier plan wasn’t worth it.
Flexible Spending Accounts (FSAs)
The basics: There are three types of these tax-advantaged accounts — for commuting, dependent care and health care.
Healthcare FSAs let you have as much as $3,050 deducted from your paycheck, before taxes, throughout the year. You can tap that money to reimburse yourself for costs such as copays, deductibles, dental expenses that aren’t covered by your plan, and even sunscreen.
Dependent-care FSAs can be used for day care, preschool, after-school programs, or for some elder-care expenses. The most a single person or married couple can contribute is $5,000. The limit for a commuter FSA is $300 a month; employees can start or stop benefits at any time, but unused funds can’t be refunded.