Question

A well-known real option is the annual decision that some people make during the benefits period called open enrollment to augment their health insurance for a year. Suppose you typically don’t get dental insurance as a regular benefit but you can add it in any year for an additional cost. Using the basic tenets of options, is this dental insurance likely to be inexpensive and cover lots of procedures? Explain.

Answer 1

If you’re employed by a company that provides benefits you might be receiving a reminder in the fall about your upcoming open enrollment period. Many companies do this in the fall so that the new benefit elections take effect at the start of the new year, although your open enrollment period may be at a different time. The open enrollment period is important because it is one of the few times you can make changes to many of your employer-provided benefits.

Open Enrollment

Open enrollment is usually a few weeks to a few months during the year that allows employees to make changes to their various benefit plans. These changes usually cover benefits such as health insurance, vision, dental, and life insurance. You may also have benefits such as disability and health savings accounts that would be eligible as well.

During open enrollment employees have the option to enroll in benefits for the first time, change their current plans or coverage amounts, or to drop coverage completely. These decisions have a significant financial impact so it’s important to weigh your options carefully.

Why Open Enrollment Is Important

With most types of benefits once you elect an option you are bound to that option for an entire year unless you meet a few exceptions. For example, if you sign up for the health plan that has a bi-weekly premium of $100 you’re going to be stuck with that plan until your next open enrollment period or a major qualifying event.

The IRS defines these qualified events as:

• Marriage
• Divorce
• Birth
• Adoption
• Death

If you don’t have a qualifying event listed above you can’t make changes to your current coverage options until the next open enrollment period. Obviously, choosing the wrong plan can be costly if you’re forced to stick with your decision for an entire year and you don’t qualify for a change.

Things to Consider During Open Enrollment

For most people, the largest component of their benefits package is health insurance. When you enter your open enrollment period you need to carefully examine your health insurance options and costs. Companies regularly change plans and premiums in order to keep up with the times so the coverage and premiums you had last year may not be the same this year.

Beyond examining your own coverage options be sure to look at what your spouse’s insurance may provide. Just because you utilized your employer’s plan last year doesn’t mean that’s the best course of action this year. It might make sense to switch to your spouse’s plan.

Be sure to take into account all aspects of the coverage and not just the cost. You’ll want to compare premiums, deductibles, co-pays, and total out-of-pocket limits. A lower premium may seem like big savings, but you could end up paying even more if the coverage is not as good.

Going Beyond Open Enrollment Benefits

Even though you’re going to use this time to change your benefits available through open enrollment it’s also a good time to examine your other work-related financial issues. Now is a good time to take a look at your tax withholding. As you know, your employer withholds taxes from your paycheck. Then at the end of the year, you get a W-2 that outlines how much you earned and how much was paid in taxes. If you’re someone who always receives a large refund or has to owe the IRS money in April you’re not having the right amount withheld.

By examining your withholding you can make sure you’re not having too much or not enough withheld. Learn how to determine your W-4 exemptions for tax withholding.

Second, use the open enrollment time as a reminder to check your retirement benefits. Most 401(k) plans allow you to make changes at any time, but since you’re already examining your other benefits this will be a good time to look at this as well. Make sure you’re contributing to the plan if you have one, and if they offer a company match, be sure you’re getting all of the free money you’re entitled to. Beyond that, look at your investment mix and performance and make sure your investments are still on track to reach your goals.