Your guide to health care open enrollment

NEED TO KNOW
  • Now is open enrollment time for many employees
  • More than half of companies are raising insurance premiums
  • HSA's and FSA's explained
Your guide to health care open enrollment

Ah, fall. It’s that magical time of year synonymous with cooler temperatures, beautiful foliage, pumpkins and…open enrollment? That’s right. If you work for a larger employer, it’s time to decide on your health care benefits for 2012. If you don't know an HSA from an HOA, don’t worry -- I’ve got you covered.

First, the bad news: you’re probably going to pay a little more for your employer-sponsored health insurance next year. Human resources consulting firm Towers Watson expects two-thirds of companies will raise employees’ premiums for single-only health coverage. That goes for your family, too. Seventy-three percent of companies are expected to raise workers’ premiums for dependent coverage.

You could be paying more because your employer is paying more. Towers Watson predicts employer health care costs will rise nearly 6% next year. Right now, annual premiums for individual health coverage are around $5,500, according to Kaiser Family Foundation’s survey of employer health benefits. Employers are picking up most of that tab, about $4,500 worth.

Now, let’s move on to the good news: even if you’re paying more for your health insurance, there are ways you can save money. I have two important acronyms for you to remember: HSA and FSA. These are two popular tax-advantaged accounts for medical expenses that you may have access to. Since you can’t have both, knowing the differences between these accounts can be a key part of making the right open enrollment choice this year.

An HSA is a Health Savings Account. The way it works is that you put money into the account pre-tax and it’s then spent tax-free on qualified medical expenses. But, you can only open one of these accounts if you’re enrolled in a high-deductible health insurance plan. The minimum deductible an individual insurance policy can have is $1,200 ($2,400 for families), which might be more than you’re used to.

There’s also a limit on the amount you can put into your HSA each year. For 2012, the most you can contribute is $3,100; families can put in $6,250. What’s great about the HSA (and a big difference between it and the FSA) is that if you don’t use all the money you put in by the end of the year, it rolls over for use on future medical expenses. Plus, if you leave your employer, you can take the HSA with you.

Like the HSA, money goes into a Flexible Spending Account (FSA) pre-tax, and you can use it tax-free for qualified medical expenses. But, you don’t have to have a high-deductible insurance plan to open one. With an FSA, though, you have to be very careful when you’re estimating your annual health care costs. If you don’t use the money you contributed within the time frame allowed, usually 12 to 15 months, you lose it. On average, workers lose between $43 and $60 from their FSA because they don’t use the money in time.

FSA contributions aren’t officially capped right now, but employers typically keep the limit between $3,000 and $5,000. Starting in 2013, the most employees will be allowed to contribute is $2,500 per year.

There’s one more gotcha with the FSA, thanks to some fine print in the health care reform law. People who use the accounts to pay for over-the-counter medicines are required to get a prescription first. That could amount to a big hassle for you and your doctor. Some pharmacies are trying to make it easier for FSA users to track their over-the-counter prescriptions, even saving them a doctor’s visit. But, the rule is still going to require you to be extra careful when you head to the drug store.

So, you’ve got two options that could help you save money, but how do you know which one is right for you? First, you’ve got to consider your risk tolerance. Are you someone who is comfortable shelling out for a higher deductible if something catastrophic happens? Next, how good are you at estimating your health care costs, and are they fairly steady? Finally, look carefully at the details of both the HSA and FSA to figure out which one makes more sense in your situation.

Your Bottom Line:

HSA (Health Savings Account)
- Contributions are pre-tax
- Unused money rolls over
- Must have a high-deductible health plan

FSA (Flexible Spending Account)
- Contributions are pre-tax
- Unused money is forfeited
- Plan’s deductible doesn’t matter

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