It’s that time of year again — open enrollment season, when employees have to make decisions about the workplace benefits their employers offer. Of course, the easiest way to get through what can be a tedious process is to just stick with the options you chose last year. But that would be a mistake.
“Part of the reason that people go with the status quo is because benefits can be complex and overwhelming,” said Lenny Sanicola, a senior practice leader at human resources association WorldatWork. However, he said, “You may be leaving money on the table.” There might be changes to the benefits you currently have that will make them more expensive, there might be new offerings that provide savings, or your situation might have changed and what worked for you this past year won’t next year.
That’s why it pays — literally — to review your benefits during open enrollment. Take this opportunity to find ways to cut costs and get the most value from your benefits package.
1. Read the Fine Print to Find Health Care Savings
More than half of the employees recently surveyed by insurance provider Aflac said they spend less than 30 minutes researching their health care benefits — even though the terms of their policies have likely changed. By not reading the fine print, they might be selecting plans that will cost them much more than they expect.
One reason for this is because employees tend to focus more on monthly premiums than on the deductibles or the percentage of co-insurance they’ll have to pay for health care, according to the Aflac survey. Typically, low-premium plans have high deductibles, Sanicola said, which means you’ll likely have to cover some hefty out-of-pocket costs before your coverage kicks in.
Consider how often you visited the doctor or hospital over the past year and whether you expect to make a similar number of visits, have as many medical procedures and need as many prescription drugs next year. If the number is high, a plan with higher premiums but lower deductibles might save you more money.
2. Get Tax Savings With an FSA or HSA
A health care flexible spending account allows you to set aside up to $2,550 in pre-tax money for qualified medical, dental and vision expenses that aren’t covered by insurance, according to the IRS. Because FSA contributions come out of your paycheck before taxes, they lower your taxable income. And by using FSA funds for out-of-pocket health care costs, you can save an average of 30 percent on those expenses because you’re paying for them on a pre-tax basis, according to WageWorks, which administers pre-tax benefits programs.
Make sure, though, that you have a good idea of what your out-of-pocket costs will be because you might lose FSA funds you don’t use each year. The IRS allows — but doesn’t require — employers to let employees carry over up to $500 in unused funds to the next year. So you need to check with your human resources department to find out if your employer will allow you to carry over unused funds.
If you have a high-deductible health plan, your employer might offer you the option to contribute pre-tax dollars to a health savings account. An HSA is similar to an FSA in that funds can be used to pay for qualified medical expenses. But the money in an HSA can be carried over year to year, and the contributions limits are higher than FSA limits.
In 2016, you can contribute up to $3,350 if you have an individual health insurance policy with a deductible of at least $1,300. If you have family coverage with a deductible of at least $2,600, you can contribute up to $6,750. If you expect to have high out-of-pocket costs, the HSA might be a better option than the FSA because it allows you to set aside more money.
3. Use Wellness Incentives to Lower Health Care Costs
About half of employers have workplace wellness programs to encourage employees to be healthier, according to a study by Rand Corporation. Not only are these programs free, but many also offer financial incentives for participation, Sanicola said.
More than one-third of large employers with at least 200 workers offer lower health insurance premiums, lower deductibles, and gift cards or cash incentives to workplace wellness program participants, according to a study by the Kaiser Family Foundation. Some employers will even make contributions to the HSAs of employees who participate in wellness programs, Sanicola said.
4. Look for Low-Cost 401k Investment Options
One of the best ways employees can save money during open enrollment is to choose low-cost index funds instead of actively managed mutual funds when picking investments for their workplace retirement accounts, said Robert Johnson, president and CEO of The American College of Financial Services. For example, many large Standard & Poor’s 500 index funds have annual expenses that are less than 0.2 percent. Yet, many mutual funds have sales charges (front-end loads) of up to 5.75 percent and annual expenses that can approach or exceed 1 percent.
These fees eat into your returns and reduce the amount of money you’ll have for retirement. Even a small difference in fees can have a big impact over time, Johnson said. If fees and expenses on your account are 1.5 percent, your balance will be 28 percent smaller at retirement than if the fees had been just 0.5 percent, according to the U.S. Department of Labor.
Plus, actively managed funds with higher fees don’t have a better track record than index funds. In fact, they routinely underperform the passive indexes, Johnson said. So those higher expenses aren’t always justified. See the Labor Department’s A Look at 401k Plan Fees to understand fees better.
5. Cut Transportation Costs With Commuter Benefits
You can cut the cost of getting to and from work if your employer offers transportation benefits. IRS rules allow employees to set aside up to $130 a month in pre-tax dollars for public transportation and up to $250 each month for parking expenses, according to the Society for Human Resource Mangement.
Find out if your employer offers this benefit, then use a tool such as the WageWorks commuter savings calculator to find out how much money you’ll save by using this pre-tax benefit.
6. Get Discounted Disability Insurance
Often, you can get a better rate on disability insurance through work than you can on your own, Sanicola said. Group disability coverage typically replaces at least half of your salary — up to a maximum monthly limit such as $5,000 — if you are disabled and unable to work, according to the Consumer Federation of America.
Before signing up though, Sanicola recommends comparing the cost and coverage of individual policies versus the group policy at work to make sure you’re getting the best value for your money.
7. Save Money on Life Insurance
There’s a good chance you can get life insurance for free through your employer. A Society of Human Resource Management study found that 86 percent of the organizations it surveyed offer company-paid life insurance. However, your employer will determine your coverage limits, which might not be enough for you. So you might need to purchase additional coverage either on your own or through work.
Individuals in good health typically can get good rates on life insurance on their own. However, those with health issues might be able to get additional coverage at a better rate through a group policy, according to Fidelity.