Eye Opening Costs At Open Enrollment?

Pop Quiz: Per U.S. government data, over past 12 months (8/21 - 8/22) which has increased the most in price?  

1. Household Energy

2. Unleaded Regular Gasoline

3. Bread 

4. Health Insurance

In fairness, you’ve experienced A) 21.2%, B) 24.1%, and C) 16.2%, however for many fall brings Open Enrollment to work benefits so sticker shock of D) 24.2% health insurance has yet to be realized. 

That’s right, health insurance increased ~3X greater than 8.3% US inflation and same as gas. Think of the promotions or actions you’ve taken to save $5-15 at the pump. Well, this is greater for family paying $500 a month on a corporate health plan and facing ~$1,440 annual increase.   

What can you do? 

Understand Plan Changes & Your Situation: In a PPO due to your doctor, but you’ve visited him/her twice in the last 3 years? What’s the highest annual out-of-pocket medical expenses total the last 3-5 years? Expect high out-of-pocket expenses in 2023? These and other questions will help you run the numbers.

Case for High Deductible Health Plans (HDHP): People get scared by maximum out-of-pocket costs for HDHP and dub HDHP “for the healthy and wealthy”. Yes, a PPO will have lower maximums and deductibles, but you're guaranteed to pay more to obtain. 

Compare PPO costing $247 biweekly with $6,000 maximum out-of-pocket versus HDHP at $142, a $13,000 maximum out-of-pocket, and employer providing $1,500 to enroll in Health Savings Account (HSA). 

PPO guarantees $6,422 paid in premiums while HDHP is $3,692 less $1,500 given by employer to contribute to HSA, thus equals $2,192 or $4,230 less than the PPO. Thus, maximum out-of-pocket expenses differential is $2,770 and not $7,000. Furthermore, you’d need $10,230 of out-of-pocket medical expenses to make this PPO breakeven with this HDHP. 

About Health Savings Accounts (HSAs): Tax-exempt savings plans paired with a HDHP meeting certain criteria. HSA is not “Use It or Lose It” like Flex Spending Account (FSA) and upon leaving a company or retirement, you maintain your HSA.  

Key HSA facts:

• In 2023, individual can contribute $3850 and family up to $7,750.

• Over age 55 an additional $1,000. 

• All contributions are tax-free: federal, state, and FICA (Social Security and Medicare).

• No federal taxes on HSA funds spent on qualified health care expenses.

• Excess HSA funds can be invested for tax-free growth to compound for years.

Unlike other tax-advantaged savings plans, HSAs offer “triple tax benefits”: tax-free contributions, tax-free earnings, and tax-free distributions.

Get The Tax Savings: Consider a family in 24% tax bracket contributing $4,000 to HSA, it would be tax savings of $1,466 ($960 federal 24% + $200 state MA 5% + $306 FICA 7.65%). Earners in 32% bracket can max out 2023 contributions and gain tax savings of $3,460. 

Set Some Time and Seek Help: Open enrollment is the once-a-year opportunity to make changes to your work benefits without needing a life event. Beyond insurance and retirement benefits, these elections help maximize your savings, estate planning and taxes for 2023 and beyond. 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Glenn Brown is a Holliston resident and owner of PlanDynamic, LLC, www.PlanDynamic.com. Glenn is a fee-only Certified Financial Planner™ helping motivated people take control of their planning and investing, so they can balance kids, aging parents and financial independence.

This article appeared in the October editions of Local Town Pages for Holliston, Natick, Ashland, Franklin, Hopedale, Medway/Mills, Bellingham, and Norfolk/Wrentham.

Please call me at (508) 834-7733 or directly schedule a meeting to learn more about considerations for planning and investing so you can balance kids, aging parents and your financial independence.

PlanDynamic, LLC is a registered investment advisor. This article is intended to provide general information. It is not intended to offer or deliver investment advice in any way. Information regarding investment services are provided solely to gain a better understanding of the subject or the article. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy will be profitable.

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