AlamyBy Sarah O’Brien, Special to CNBC.com
With open enrollment at U.S. companies right around the corner, many workers will find themselves sifting through mounds of paperwork trying making sense of the benefit options awaiting them.
This year’s enrollment season gets even more complicated with an expanded health insurance marketplace as part of the president’s Affordable Care Act. While more options mean price points will be more competitive, it can also make finding the right plan daunting.
Many consumers just don’t understand the health plan choices they need to make and that means they could be wasting money or unnecessarily paying out-of-pocket expenses.
To cut through the confusion, many turn to a trusted financial expert. Conversely, savvy financial advisors typically reach out to clients as open enrollment approaches.
“I send a note to working clients saying that if they are facing open enrollment, they should contact me,” said Roger Wohlner, a certified financial planner with Asset Strategy Consultants.
As health-care costs outpace annual inflation at a clip of 4 percent, with some estimates pegging even higher costs in coming years, companies increasingly have adjusted insurance offerings to mitigate their own cost for offering coverage.
What this means is that more employers are steering employees into consumer-directed health plans, which generally require workers to take more control over how health-care dollars are spent.
“You really need to look at all options and changes before you make a decision,” said Ted Jenkin, a certified financial planner who is co-CEO and founder of oXYGen Financial. “Your overall decision should be predicated on past medical expenses and what you anticipate (spending) going forward.”
The number of large employers offering only a consumer-directed health plan continues to rise, with 22 percent of firms planning to implement such plans for 2014, up from 19 percent this year, according to a survey released in August by the Washington, D.C.-based National Business Group on Health. Already, 72 percent offer such plans, the survey found.
Basically, it’s getting more complicated. No longer will choices be limited to low-deductible plans where coverage choice is based solely on in-network or out-of-network coverage or a focus on preventive or catastrophic care coverage.
Consumer-directed health plans all have one thing in common: They are tax-advantaged accounts. Included in those plans are health savings accounts, flexible spending accounts and health reimbursement arrangements.
FSAs are funded through pretax payroll deductions and can be used for eligible medical expenses. The IRS contribution limit now is $2,500, with the amount scheduled to be adjusted yearly for inflation.
The downside is FSAs are use-it-or-lose-it accounts, meaning unused funds at either year-end or an employer-imposed deadline are forfeited.
Wohlner advises clients who use FSAs to evaluate their medical expenses and adjust contributions accordingly.
“If you see your expenses were lower this year (than your 2013 commitment), don’t contribute as much for next year,” Wohlner said.
Additionally, FSAs no longer can be used to fund over-the-counter expenses because of provisions in the Affordable Care Act. In past years, FSA owners with unused funds could stock up on needed OTC medications.
FSAs are not used in conjunction with high-deductible plans — that’s what HSAs are for.
HSAs must be coupled with a high-deductible plan. IRS guidelines for 2014 dictate the deductible must be at least $1,250 for self-only coverage or $2,500 for family coverage. But, the 2014 pretax contribution limit to an HSA is higher than for an FSA — $3,300 per individual and $6,550 per family — and unused funds remain in the account.
Another appeal is an HSA’s portability — it can move with the employee from job to job.
Tom Henske, a certified planner with Lenox Advisors, advises clients to use HSAs if they are offered.
“Clients generally will worry about 12 to 24 months from now, not 12 to 24 years,” Henske said. “But we don’t see any end in sight for rising costs. We don’t know where this is going. So workers should build a war chest.”
Certified financial planner Jennifer Cray agrees.
“It’s really a way to save for retirement,” said Cray, who works for Investor’s Capital Management.
Another benefit to HSAs over FSAs is that they require less guesswork, Henske explains.
“Deciding how much to put into an FSA is just a guesstimate of how much you need,” Henske said.
Health reimbursement arrangements increasingly are being explored by companies. In fact, Jenkin has seen a growth in their use specifically among small-business owners.
The biggest difference between an HRA and that of an FSA or HSA is that it is owned by the employer. The company funds it, but the employee uses the money for qualified medical expenses.
Although workers cannot contribute to an HRA, they are not taxed on the employer’s contributions. The company, meanwhile, gets a tax break — which is why some companies view such accounts as a way to mitigate their rising health-care costs, according to some financial experts.
Federal law also allows significant flexibility in how employers implement HRAs.
Behavioral health coverage, including mental health and substance abuse, fall under the jurisdiction of federal law requiring certain levels of coverage. Exact coverage, including deductibles and allowable visits, varies from state to state.
Additionally, many companies also offer dental and vision coverage.
“It’s usually very cheap relative to health insurance, so it’s almost always worth getting,” Cray said. “But make sure your doctors are in network.”
She adds that for workers with children, vision and dental coverage can be more crucial because of unanticipated costs such as orthodontic care and eye glasses or contact lenses. And, typically, preventive care such as routine dental cleanings and vision checks are low cost.
The bottom line, Jenkin said, is employees need to evaluate the full picture of insurance options before blindly committing with little thought.
“Look at your options,” he said. “And really give thought to how you build an overall construct that meets your needs.”
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