In the coming weeks, millions of Americans will receive their 2011 employee benefit open enrollment materials. Yes, it's a pain to wade through all that information, but simply opting for your current coverage could prove to be a costly mistake. Here are a few reasons why:
Plan changes. Many benefit plans -- especially medical -- change coverage details from year to year. If you have more than one option to choose from, compare plan features side by side to ensure you're choosing the best alternative for your current situation.
Common changes might include:
- Employers sometimes drop or replace an unpopular or overly expensive plan. In addition, insurance companies themselves sometimes alter plan offerings in certain areas.
- Increased monthly premiums for employee and/or dependent coverage.
- Increased deductible and/or copayment amounts for doctor visits, prescription drugs, preventive care, hospitalization, dental or vision benefits, etc.
- New eligibility rules for dependent coverage.
- A revised drug formulary (the list of covered medications, including copayment levels for different drug classifications).
- Your favorite doctors or hospital may withdraw from the plan's preferred provider network, boosting the cost to use them or even eliminating them as an option.
- Changing the number of allowed visits for certain types of care such as acupuncture, chiropractic or physical therapy.
- Raising maximum yearly out-of-pocket expense limits.
In addition, among the provisions of the Affordable Care Act is that group medical plans that offer dependent coverage now must extend that coverage to adult children under 26 in most cases, even if they no longer live with you or are claimed as your dependent. Ask your Benefits Department if this provision applies and how much you would pay in additional premiums.
Compare with spouse's coverage. Each year, compare your employer's plans side-by-side with those offered by your spouse's employer, particularly when deciding where to insure your children. Just make sure it's apples-to-apples. For example, one plan may charge lower premiums but have higher deductibles and copayments; or it may limit needed coverage -- say your kid takes an asthma medication that one plan doesn't cover.
Review flexible spending account (FSA) contributions. If offered by your employer, health care and dependent care FSAs are a great way to offset the financial impact of medical and dependent care expenses. With FSAs, you pay eligible out-of-pocket medical and dependent care expenses on a pre-tax basis; that is, before federal, state and Social Security taxes are deducted from your paycheck. This reduces your taxable income and therefore, your taxes.
You can use a health care FSA to pay for any IRS-allowed medical expenses not covered by your medical, dental or vision plans, including deductibles, copayments, braces and other dental work over plan limits, glasses and contact lenses, prescription and over-the-counter medicines, acupuncture, chiropractic, smoking cessation programs and many more. Check IRS Publication 502 for a list of allowable expenses.
With a dependent care FSA you use pre-tax dollars to pay for eligible expenses related to care for your child, disabled spouse, elderly parent, or other dependent incapable of self-care, so you (and your spouse) can work. For some people, the federal dependent care tax credit is more advantageous, so ask your tax advisor which alternative is better in your situation.
Keep in mind these FSA restrictions:
- Important: Effective January 1, 2011, over-the-counter medicines will only be eligible for FSA submission with a doctor's prescription (an exception is made for insulin), so plan accordingly.
- Maximum contribution amounts vary by employer, but commonly are $2,000 to $5,000 a year for health care and $5,000 for dependent care FSAs.
- Estimate planned expenses carefully because you must forfeit unused account balances. Some employers offer a grace period of up to 2 ½ months after the end of the plan year to incur expenses.
- You must re-enroll in FSAs each year -- amounts don't carry over from year to year.
If your health insurance deductibles and copayments do go up next year, consider increasing your FSA contributions accordingly. My employer, Visa Inc., provides a free personal financial management site, Practical Money Skills for Life, where you can learn more about how FSAs work.
Consider family status changes. If you marry, divorce, or gain or lose dependents, it could impact the type -- and cost -- of your coverage options. For example:
- Compare maternity and pediatric benefits offered by the various medical plan options. Slightly lower monthly premiums might not be worth more restrictive coverage.
- If you use a dependent care FSA, carefully estimate how much childcare (or day care for eligible adult dependents) you'll need next year to maximize your tax advantage.
- Similarly, consider family status changes when estimating eligible expenses for your health care FSA.
- Recalibrate life insurance and disability coverage if more dependents now rely on your pay.
- Also review beneficiary designation forms to ensure your life insurance, 401(k) or other plan benefits will go to the appropriate people if you should die unexpectedly.
It's worth spending a few minutes reviewing your benefit coverage options for next year, especially when you consider the potential financial consequences of not doing so.
This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.
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