With open enrollment season at work about to kick into full swing, now's the time for most employees to put some serious thought into their benefits. Unfortunately, it's a process that proves harrowing for a surprising number of people. That's because nearly 50% of U.S. employees don't understand their benefits materials, or so reports the International Foundation of Employee Benefit Plans, and thus are ill equipped to make smart decisions during open enrollment.
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But if you think that sounds like a problematic statistic, wait -- it gets worse. In a 2017 Aflac study, 74% of workers revealed that there are at least some components of their benefits they don't understand. Furthermore, 92% of workers say they simply choose the same benefit year after year rather than attempt to navigate their options. If the idea of selecting your benefits this season is enough to make you sweat, here are some tips for getting through open enrollment and making the best choices.
1. Get familiar with insurance jargon
It's hard to choose the right health insurance plan if you don't understand its terms. Before you attempt to select your coverage (or, worse yet, resign yourself to your current plan, even if it's not serving your needs), read up on what all that lingo actually means. Your premium, for example, is the amount you pay for the privilege of having health insurance, kind of the same way you pay a monthly membership for access to your gym. Your deductible, meanwhile, is the amount you'll need to pay out of pocket before your insurance company starts paying for your services. Then there's your copay, which is the amount you'll be responsible for paying each time you receive medical treatment or fill a prescription once your deductible has been met.
Understanding these terms is important, because they can help you make a critical financial decision. It's often the case that insurance plans with lower premiums come with higher deductibles, and vice versa. So while you might think you're saving money by signing up for a low-cost plan, you could end up spending more out of pocket if you wind up using that insurance a lot during the year. And that's certainly not ideal.
2. Understand how tax-saving benefits work
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Many people pass up benefits like flexible spending accounts (FSAs) simply because they don't understand how they work. But if you typically spend money on medical expenses or child care, it pays to sign up for one of these accounts. That's because the money you fund your account with goes in on a pretax basis, thus allowing you to use tax-free dollars to pay for the things you know you need.
FSAs come in two varieties: healthcare and dependent care. For the former, you can contribute up to $2,600 a year. For the latter, the limit is $5,000. Now let's say you typically rack up precisely $2,600 in healthcare costs and $5,000 in day care charges. Let's also assume your effective tax rate is 25% (meaning, you lose 25% of your income to taxes). Without an FSA, you'd pay $7,600 in after-tax dollars. But by covering those costs with pretax dollars, you'll automatically save yourself $1,900.
Now the only catch with FSAs is that once you decide how much to contribute to your account, you can't go back and change that allocation unless you experience a qualifying life event during your plan year, such as getting married or having a child. This means that you'll need to carefully estimate your spending needs, because if you overfund your account, you'll forfeit whatever amount is left in it by the time your plan year comes to a close. But if you allocate just the right amount to your account, you'll end up benefiting tremendously.
3. Don't be afraid to ask for help
Open enrollment can be a daunting process, so why go it alone? If the information your company provides doesn't suffice in helping you make an informed decision, ask for further clarity. This might mean sitting down with an HR person or petitioning your employer to bring in an outside expert who can walk you and your colleagues through your options. In the above-referenced Aflac survey, 48% of workers say they'd like the option to speak with an expert about their benefits, so if that choice isn't immediately made available to you, request it.
Selecting your workplace benefits shouldn't be a stressful process. If you're dreading open enrollment, read up on how health insurance works, learn more about your potential tax benefits, and speak up if your employer isn't providing adequate information. This way, you'll be in the best position to make the right choices.
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