Ask Kim


6 Things to Consider During Open Enrollment for 2013

Kimberly Lankford

If you're thinking about making changes to your health benefits, here's what you should know.



I know that open enrollment is the time to make decisions about my group health coverage, but my employer is also offering to let me buy other kinds of insurance and sign up for other benefits that include some tax breaks. Should I consider these deals?

SEE ALSO: Upgrade Your Benefits During Open Enrollment

Yes. Open enrollment not only gives you the opportunity to choose your health insurance plan for next year (see Make the Most of Health Insurance Changes in 2013) but also offers you a chance to buy other insurance at group discounts or set aside pretax money in accounts that can help with your medical, child-care and commuting expenses. Here are six benefits for which you may be eligible during open-enrollment season this fall.

Tax-free money for medical expenses. If your employer offers a medical flexible spending account, take advantage of it. A medical FSA lets you set aside tax-free cash to use for out-of-pocket medical expenses, such as copayments and deductibles (but not premiums) for you, your spouse and eligible dependents. Most plans even let you use the money for children through the year they turn age 26, whether or not they are covered under your health insurance or considered to be dependents for tax purposes. For 2013, you can contribute up to $2,500 per person to the account (the limit is down from previous years, owing to recent legislation). See our How Much Should I Put in My Flexible Spending Account? calculator for help deciding how much money to contribute, and see 7 Smart Uses for Your Flex-Account Money for more information about how you can spend the money.

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Tax-free money for child care or elder care. Many employers let you set aside up to $5,000, before taxes, in a dependent-care FSA (the limit is per family) to pay for care for a child who is younger than 13 so that you and your spouse can work or look for work. You may also be able to use money in the account to pay for care while you work if an elderly parent who lives with you is physically or mentally incapable of caring for himself or herself (ask your employer about its rules). See Tax Break for Elder Care for more information. Tax breaks from the dependent-care FSA are usually more valuable than the dependent-care tax credit, unless you have very low income. See FSA or Child-Care Credit? for more information.

Tax breaks for commuting. You may also be able to set aside pretax money to help fund your commute. You can contribute up to $125 a month for public-transportation passes or van-pool costs, and up to $240 a month for qualified parking expenses. For more information, see the Commuter Benefit page at SaveSmartSpendHealthy.com.

Extra help protecting your income. Many employers let you buy extra disability insurance, which you pay for yourself and may keep after you leave your job. People tend to overlook this coverage if they already receive some basic disability insurance as a free employee benefit. Employer-paid policies are a good start, but they are taxable and generally cover just 60% of your base pay (not counting any bonuses); your pretax monthly benefit may be capped at $5,000 to $10,000. If that isn't enough money to pay your bills, consider buying extra coverage through your employer. These voluntary policies generally offer benefits that supplement the free coverage offered by the employer. Also, when you pay the premiums yourself, you won't have to pay taxes on the benefits. For more information about disability insurance, see Better Deals on Disability Insurance. Also see the Council for Disability Awareness’s interactive Web site, Defend Your Income, for more information about disability risks and insurance, and for help calculating whether you have enough coverage.

Long-term care at group discounts. In past years, many employers offered long-term-care insurance policies to employees at a group discount of 5% to 10% compared with individual coverage. The policies typically have many of the same benefits as individual coverage, and you may keep them after you leave your employer. But low interest rates and higher-than-expected claims are causing some major insurers to leave the business. If your employer still offers this coverage, compare the benefits and prices with those of individual long-term-care policies. For more information about long-term-care insurance, see Navigate a Course for Long-Term Care.

A chance to buy extra life insurance. Your employer may also give you the opportunity to buy extra life insurance to supplement any free coverage you receive through work. If you're healthy, however, you'll likely get a better deal by buying a policy on your own. Insurers that offer group policies often assume that mostly people in poor health will apply, so rates are usually higher than they are for preferred-rate individual policies, and the rates typically go up every five years instead of staying fixed for 20 or 30 years.

Got a question? Ask Kim at askkim@kiplinger.com.



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