Open enrollment guidance for employees and small business owners
It’s that time of year again that most employees and business owners are entrenched in insurance decisions that are coming due quicker than expected. You may have already received your 2022 benefits guide if you’re an employee, and owners may be confronted with even more complex insurance options for themselves and staff; here are some tips to hopefully get you through the process unscathed
Your 2022 benefits will likely include choices on health, life, disability, HSA/FSA, and more, depending on what your employer offers.
Group health insurance may include Bronze, Silver, and Gold plans, with the latter being the most expensive to the employer (and also likely the employee) but comes with the most benefits. Pick this if you expect high medical expenses. If you expect little to no medical issues next year, then you can go with the Bronze plan, which may also offer the option to contribute to a Health Savings Account (HSA) for $3,650 (individual), $7,300 (family). These accounts provide a tax-deduction on the contribution, investment options, and tax-free distributions on qualified medical expenses in the future. HSA accounts make a great supplemental retirement savings strategy and are highly encouraged.
Group life insurance should be considered if you have dependents. The size of coverage should typically cover the total debt (mortgage, car loan, etc), plus the survivor income need should the bread-winner die unexpectedly. Generally, the minimum amount of life insurance employers offer is $50,000 free of charge for the employee. Amounts above this can be either a cost carried by you or the employer. If the employer pays for your coverage, then the larger amount of coverage will be taxed to the employee.^1
Group long-term disability is there to cover usually 60% of gross salary until your retirement age (65) in case of full disability and is generally highly recommended for those who are starting out or are in the middle of their careers. Disability benefits are taxable and therefore the net amount is usually less than what’s expected. It’s prudent to obtain supplemental coverage in the private marketplace, which can provide coverage even if the disability isn't “full”.
Flex Spending Account - If you're not going to contribute to the HSA, you may have the option to contribute to an FSA for $2,750/individual and $5,000 to a dependent care FSA. Unlike an HSA, where you can rollover your contributions year to year, the FSA must be spent down each year (you can roll $550). Contributions are both pre-tax FICA and federal and can be used for qualified medical expenses including many over-the-counter items. ^2
Owners have to take the role of insurance expert among all the other roles expected of being CEO. Beyond just deciding for themselves, they have to make decisions for employees as well and define how generous their benefits will be. This is also often a marketing decision to attract and keep talent.
The Healthcare Marketplace (aka Obamacare) offers individual and group plans and open enrollment is now through December 15, for January 1 start. If in California, coveredca.com, there are subsidies to cover your individual/family plan premiums depending on your adjusted gross income in 2022. Self-employed people may start seeing subsidies to their premiums if their AGI is under $45,000 (in Los Angeles, and varies). Above that, Covered CA brokers negotiated prices with 4-5 different major insurance providers, including Blue Shield and Health Net, etc. Group plans can offer employees a few insurance options or a lot; the decision really depends on how much the employer would like to contribute to employees’ premiums. Usually, a minimum of 50% of the premium of the cheapest plan must be carried by the employer. There must not be discrimination; the employer will have the same options as the employee in most cases.
Small business owners must also consider the financial impact of a sick or deceased employee and should consider key-person, long-term disability, and life insurance (with the business as the beneficiary). Although open enrollment is now for most businesses, many small businesses can choose their open enrollment window. This allows for the implementation of most insurance without the need for a medical screen.
At Eureka Wealth Management, I assist with open enrollment decisions and look to the marketplace to substitute insurance that’s either not offered or too expensive by the employer. I also do retirement strategies and investment management. Call (760) 537-0791 or book a free consultation online at eurekawealthmanagement.com.
^2: IRS FSA Eligible expenses: https://www.irs.gov/publications/p502#en_US_2013_publink1000178885