A year ago today, open enrollment may have been an afterthought. Just another box to check off on your overflowing to-do-list.
But not in 2020.
As you consider your open enrollment options this year, you are probably considering yourself fortunate to have employer-sponsored benefits. You probably know someone who has lost their job and has found out just how expensive it can be for them to individually purchase the same benefits they had through their job.
You also may be suffering from sticker shock as you survey your options this year. Medical and insurer costs continue to rise, with no end in sight in the foreseeable future. It's more important than ever to invest the time to carefully consider your options in light of these rising costs.
By definition, insurance is the shared risk of a group of people paying monthly premiums for protection against the unexpected.
The U.S. Small Business Administration (SBA) has provided an overview of how a larger risk pool can result in lower premiums. They relate that when more people are enrolled in a group plan, the risks are spread out more evenly across all of the plan members.
Since enrollees in the group plan pay premiums, the insurance company has more funds available to pay claims when group members need medical care. Consequently, the high cost of any one member needing care is balanced out by the larger pool of premium-paying group members.
Not so for smaller businesses enrolling fewer employees in a group insurance plan. The insurance company is collecting lower premium amounts, and one large claim can dramatically impact that group's profitability for the insurance company in a negative way, which may result in their rates being raised the following year.
What does this mean for employees in 2020 and 2021? Group sizes have shrunk because of layoffs and terminations at companies. The number of employees paying premiums each month is fewer, meaning insurance companies are at greater risk financially with large claims. They lessen their financial exposure by raising group rates to collect larger monthly premiums, lowering their risk.
All of this means that as an employee facing rising costs, making the most prudent decisions you can during this enrollment period is more important than it has ever been.
In light of that, here are 4 helpful tips for open enrollment in 2020.
According to a Kaiser Family Foundation study conducted from January to July 2020, employees are now contributing just under $600 per month toward family coverage costs. Employee costs have continued to rise for years and show no signs of slowing down.
Procedures people have delayed having performed in 2020 may very likely need to be performed in 2021, increasing employee claims and leading to even larger premium increases next year.
How can you combat the rising costs of health insurance premiums? Here are a couple of suggestions:
- Select a high deductible health plan (HDHP). According to healthcare.gov, the IRS defines a high deductible health plan as any plan with a deductible of at least $1,400 for an individual or $2,800 for a family. An HDHP's total yearly out-of-pocket expenses (including deductibles, copayments, and coinsurance) can't be greater than $6,900 for an individual or $13,800 for a family. (This limit doesn't apply to out-of-network services). The higher your deductible, the lower your premium.
- Change your coinsurance ratio, which is the percentage you'll pay after you meet your deductible. A standard ratio is 80/20, where the insurance company picks up 80% of the claim, and you pay 20%. Consider changing that ratio to 70/30, which will reduce your monthly premium because you're assuming a larger percentage of the claim payment.
A health savings account can help you lower your taxes, pay for healthcare expenses, and even help you save for retirement. They're only available with high deductible health plans and are used to pay for eligible health care expenses, and for out-of-pocket costs your health plan doesn't cover.
With an HSA, the money you contribute towards it is made with pre-tax dollars, meaning it will reduce your taxable income. It grows tax-free and isn't taxed when you spend it. Unused contributions roll over from year-to-year, and at age 65 you can withdraw the money for any reason, which can help fund your retirement (the withdrawal is taxed as regular income).
Together, a health savings account and a high deductible health plan can add up to significant savings. The amount you can contribute to your HSA is quite liberal: up to $3,550 for individual coverage and up to $7,100 for family coverage.
Every health insurance plan has gaps in coverage and can leave you with large out-of-pocket expenses. Even an HSA can, after you've exhausted the account balance, lead to substantial financial exposure for you in the case of a catastrophic illness.
Critical illness insurance is a cost-effective way to lower your risk of facing out-of-pocket expenses your emergency fund (3-6 months of income) isn't able to cover. Individual critical illness policies provide payment directly to you for:
- Heart Attack
- Coronary artery bypass surgery
- Invasive cancer
- Non-invasive cancer
- Kidney (renal) failure
- Major Organ Transplant
- Advanced Alzheimer's disease
In addition, a hospital indemnity plan will pay you directly for expenses you incur in a hospital, such as patient room costs, operating room expenses, medical supplies while in the hospital, etc. This coverage can save you thousands of dollars in the event you or a family member are hospitalized,
The most overlooked employee benefit is disability insurance. Many people enroll in the group life insurance plan without blinking, but gloss over the disability insurance option. Doing this can cost you dearly.
According to statistics compiled by the Council for Disability Awareness, over 1 in 4 adults age 20 will become disabled before they retire, with the average duration of the disability being 34.6 months. Your employer probably will not pay you if you're not working, and few people have saved up nearly three years of income in case of a disability.
Most people envision an accident causing a disability, but that's not usually the cause. Back injuries, cancer, heart disease, and other illnesses cause the majority of long-term disabilities.
If your employer offers group disability insurance, enroll in it. If they don't, purchase disability insurance on your own. You'll need the money to not only fund your other employee benefits, like health insurance and retirement but to pay your daily living expenses. It's necessary coverage to have.
Take your time as you consider your open enrollment options this year, and be sure to submit your selections on time. Having benefits is no longer a right; it's a privilege.
Jack Wolstenholm is the head of content at Breeze.
The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.