Are you losing money by neglecting your university’s benefits open enrollment period?
The employee benefits offered by universities are often some of the most generous available. Open enrollment is your opportunity to enroll in or adjust many important benefits for the upcoming year. It can also serve as a reminder to take stock of other employee benefits not included in open enrollment to make sure you are taking advantage of everything available to you from the university.
During the annual open enrollment period, it is important to carefully consider all options and make informed decisions — now is not the time to check the “default” box. This report will serve as an informative guide to help you navigate the open enrollment period and reveal 5 money-saving tips.
Health Insurance
The primary focus of most open enrollment periods is the selection of your health insurance plan for the upcoming year. While the university typically pays for most or all of your monthly premium, you can usually select from several different coverage options. Your decision will make a big impact on your out-of-pocket costs for healthcare services and prescriptions in the coming year. It is important to understand the options available to you and make the best selection for you and your family (if applicable).
When deciding on a healthcare plan, it can be helpful to assess the best- and worst-case scenario for all available health plans. Consider any existing medical conditions, scheduled or anticipated procedures, and prescription use to estimate how much you’ll spend on medical care in the upcoming year. Barring any unforeseen events, this is your best-case scenario. Which plan will cover these needs while keeping your out-of-pocket costs for premiums, prescriptions, and services at a minimum?
Then consider the worst-case scenario of a major medical event. The most an insured individual will pay out-of-pocket per year for healthcare will vary depending on the plan you choose.
Look at the figure for “maximum out-of-pocket” listed for the plan. Can your budget absorb that cost in the event of a major medical event? Or do you need to opt for a plan that may be more expensive but has a lower maximum out-of-pocket cost?
Some universities will offer an additional option called a “Health Savings Account” or HSA. There are many tax benefits of an HSA. Dollars that you contribute to an HSA do not count toward your taxable income. When you use the money in that account for qualified healthcare expenses, the distribution is tax-free. You can also build up the value of the account year over year; you do not need to exhaust the sum in the account at the end of the year like a Flexible Spending Account (FSA).
An HSA can only be used in conjunction with a High-Deductible Health Insurance Plan (HDHP). With this kind of plan, typically you are responsible for all medical costs until you reach the deductible.
Many universities will contribute a monthly amount into your HSA to help cover these costs. In addition, you can contribute a portion of your paycheck to the HSA on a tax-deferred basis up to the annual limit.
Make sure the HDHP deductible is within your annual budget for medical care. If you have very high out-of-pocket medical expenses, a high-deductible health plan may not be the best fit.
However, if you are healthy or anticipate lower medical expenses in the coming year, then you may want to consider enrolling in a HDHP and an HSA for the tax benefits.
Money Saving Tip #1: HSA funds can be used in retirement as a tax-free resource to pay for healthcare and long-term care premiums, even some forms of Medicare.
Money Saving Tip #2: HSA contributions reduce your taxable income, so you may enjoy a lower income tax bill if you participate in this kind of health plan. Consult your tax professional.
Group Life Insurance
In most cases, university employees receive a base amount of group life insurance from the university when hired to provide a benefit to their family if they die while employed.
Participants may also choose to buy additional coverage through the university’s group plan. Typically, you’re allowed to change this election each year during open enrollment.
Before you opt-in for the additional group life insurance coverage on your own dime, consider shopping around for your own private life insurance policy.
While the rates offered through group plans can be competitive, keep in mind that the group plan is 100% inclusive. The insurance company must provide coverage to everyone, and usually without a medical exam. Because the plan must cover every employee who qualifies regardless of their health, it’s likely that a healthy individual may qualify for even better rates by purchasing their own life insurance policy.
Another benefit of private coverage is you retain it even if you change your employer or retire. Conversely, your university’s group life insurance plan will not follow you to your next job, and it may not be portable when you retire. There can be many benefits to keeping some private life insurance in all phases of your life.
Money Saving Tip #3: Shop around for life insurance policies in advance of open enrollment, especially if you are in good health. A private plan may be less expensive than your group coverage.
Disability Insurance
It is critical to understand the level of disability coverage your university provides and take the time to assess if this is adequate for your situation. Often this benefit can be overlooked or taken for granted because some level of coverage is commonly provided at no cost to the university employees.
However, statistically you are 3.5x more likely to lose your income due to a disability than premature death.* If you are the sole income earner for your family, having an adequate disability insurance plan to replace your lost income becomes even more vital.
It’s important to note that disability insurance only pays a portion of your salary. If you are an especially high-income earner, your disability coverage may only pay a small portion of what you are used to. Supplemental coverage options may be needed. It is important to evaluate your needs for both short- and long-term disability and make certain the plans you have in place are adequate.
Long-Term Care Insurance
Fewer and fewer universities continue to offer long-term care insurance to their employees. Rising healthcare costs and longer life expectancy are two of many factors that have caused several insurance providers to discontinue offering this kind of coverage altogether.
If your university offers long-term care insurance, you may want to seriously consider it. In our experience, they may only offer it to you once — typically when first hired — and if you don’t opt in immediately, you will not be able to enroll in the future.
For those concerned about long-term care costs but who do not have coverage through their employment, some private plans are still available. However, the cost can be prohibitive, especially if you are older.
In response, some insurance companies now offer a life insurance policy coupled with a long-term care rider. Essentially, if you need long-term care, you can access the death benefit of your life insurance policy. This reduces the amount that will pass to your family upon your death. If you never need long-term care, you will still have the full benefit of your life insurance to provide a benefit to your family.
Money Saving Tip #4: If you want both private life and long-term care insurance, you may be able to buy them together, saving money on premiums. Consider seeking a life insurance policy with a long-term care rider if this best fits your needs.
Retirement Plan Elections
It is a common misconception that open enrollment is the only time you can make changes to your retirement plan elections. Most universities will allow you to make changes anytime throughout the year. In fact, many now have online portals for faculty and staff to make retirement plan changes online.
However, open enrollment — typically in the fall for most universities — presents an ideal time to review your retirement plan elections and make changes if necessary.
If you have not rebalanced your portfolio or looked at your risk level recently, it’s time to get in the habit of reviewing your retirement account portfolio at least annually.
Money Saving Tip #5: You may be able to defer additional income into your supplemental pre-tax retirement plans this year to help reduce your taxable income for 2022. Consult your tax professional.
*Health Insurance Association of America, 2000
This is intended for informational purposes only and should not be construed as personalized financial or investment advice. Please consult your financial and investment professional(s) regarding your unique situation.