Open Enrollment: A Tale of a Lost Opportunity
September 27, 2011It’s open enrollment season, and many employees are making the key decisions that will impact both their health coverage and tax situation for 2012. Commonly, employees are seeing higher deductibles and co-pays, but are still not maximizing their ability to, not only cover this exposure, but to also shelter some of their income from taxes by utilizing an FSA or HSA.
Case in point: I spoke to Betty last week, a 48 year old employee who is on a total of 12 different medications and is having a difficult time keeping up with paying for her prescriptions, doctor visits, and medical tests. Her Rx bill alone each month is over $100, plus the occasional $35 co-pay for her primary physician, and a whopping $300 co-pay for her heart specialist. At first glance, her annual income seemed high enough to cover these costs, but add in a car repair and high A/C bill, and she was spending more than her net pay the past few months – with no emergency fund to fall back on. Knowing her employer offers the FSA option, I asked her when she had run out of funds in her FSA. She told me she didn’t sign up for it at all this past year because it was “use it or lose it” and she was afraid to over-fund it. Here is an employee who routinely has no less than $1,500 a year in co-pays alone, and she hadn’t put a single dollar into her FSA!
What a lost opportunity to have been able to, not only save about $375 in taxes (since she is in the 25% tax bracket), but also to have budgeted the funds through payroll deduction so she would have the money set aside to pay for these expenses. She missed out in 2011, but with open enrollment right around the corner, she agreed to put at least $50 a pay check into her FSA for 2012 to try it out. Studies have found that financial difficulties are a major cause of stress, which can then lead to actual physical illnesses, which then starts a vicious cycle of doctor visits and high medical costs.
So how can you help your own workforce? As a start, have your health insurer run a report of the out-of-pocket costs per employee last year subject to their co-pays and deductible, with a bold graph showing how much tax savings would have resulted if those funds had been deposited in the FSA or HSA available. Another great tool I have seen is an online calculator of various health plans being offered for the year that compares, not only the out of pocket expenses due to co-pays, deductible, and co-insurance, but also incorporates last year’s actual spending patterns of the employee to pinpoint the most appropriate health plan and suggested funding level of the FSA. It is amazing how we often under-estimate our own real costs until we see them in print, so make it easy for your employees to visualize the advantages of the FSA or HSA before it is too late, and another open enrollment passes them by.