October 25, 2021

Open Enrollment

Blog:PFA Ponderings

It’s OPEN ENROLLMENT season

One thing I love about Maine: Seems like we have more ‘seasons’ than just about anywhere.  Sure, some will say we have the four standard seasons: Spring, winter, fall, and the Fourth of July.  To that list, you can add mud season, black fly season, blueberry season, hunting season, and (this year) an all-too-short ‘postseason’[1].  In Maine and beyond, though, the falling leaves and crisp air also heralds in another annual demarcation:  Open Enrollment Season.

Employer Open Enrollment

Open enrollment applies mostly to insurance benefits that can be accessed or changed once per year.  The most significant of these are health insurance offerings at the employer and the government level.  Companies tend to begin these enrollments periods for employees in late October or early November, and they run for a number of weeks.

Government Program Open Enrollment

Additionally, the major government-provided insurance programs run Open Enrollment periods at this time of year as well.  Healthcare.gov, or the Affordable Care Act, or ‘Obamacare’ to many, runs an open enrollment program that runs from November 1 to January 15.  (In order to have coverage for January 1, you need to complete enrollment by December 15.)

Medicare has an Open Enrollment plan that runs from October 15 through December 7 each year.  During this period, eligible individuals can join, switch or drop a plan to start on January 1 of the new year.  In addition to open enrollment, there are 2 additional periods specific to Medicare:

  • Initial Enrollment Period. When you first become eligible for Medicare, you can join a plan.
  • Open Enrollment Period. From October 15 – December 7 each year, you can join, switch, or drop a plan. Your coverage will begin on January 1 (as long as the plan gets your request by December 7).

Why have an Open Enrollment Period?

The reason certain insurance benefits can only be accessed during a finite period each year is pretty basic.  To use insurance speak, the objective is to avoid ‘Adverse Selection’.  That term refers to the fact that if everyone can enroll in insurance plans at any point during the year, they are much more likely to NOT enroll until they feel they’ll have a need for the coverage, thus creating a pool of insureds who are much more likely to be sick and therefore much more likely to make claims than to dutifully pay the premiums.  In order for insurance to work (for both insurance companies and for the government), a good blend of healthy people paying in needs to be included with a smaller group having claims paid.

Sometimes, however, the need to enroll in an insurance plan is driven by factors other than someone’s health.  Situations like job changes, loss of coverage elsewhere, marriage or divorce – these are all examples of situations where someone may be able to enroll in an insurance plan outside of their open enrollment period.  Medicare and Obamacare both have ‘Special Enrollment Periods’ to account for these exceptions.  In the case of Medicare, the most significant example is the period when one initially becomes eligible for coverage.  For most people, that is the 7-month period that includes the month of the 65th birthday, plus the 3 months before and the 3 months after that date.

Some Important Considerations

For many, the annual Open Enrollment period comes and goes without much fanfare.  Employees and retirees tend to stick with the current plans they have in place, provided they’re being offered again in the new year.  It seems most folks aren’t big fans of change.  Some open enrollment forms simply have a box that essentially says ‘change nothing’.  Easy.

As Certified Financial Planners, we generally like to give each enrollment period some more robust oversight.  In the case of health plans:

  • What’s available? Is one plan more likely to cover the participant’s needs better than another?
  • Does the participant have a need for specialists that are better covered by one plan than another?
  • In the case of an HMO or PPO, are all the participant’s providers in-network?
  • How are prescriptions currently used by the participant covered in the plan formularies?
  • In the case of couples, is it going to be more cost-effective to have one covered as a dependent on the other’s coverage, or should each have their own?
  • Especially in the case of pre-65 retirees, is COBRA coverage (continuing employer coverage) the best deal? Outside individual coverage?  Affordable care act coverage?  Spousal / domestic partner coverage?

At the very least, a cursory look at all of these factors is warranted.  Just clicking on the ‘don’t’ change anything’ button can be costly over time.

Other parts of the open enrollment process that are often overlooked but that warrant attention are:

  • Life insurance: Many employer plans offer coverage, frequently based on a multiple of the employee’s annual earnings.  Open enrollment is generally the one time this coverage can be obtained, and it’s the one time there can be an increase in the amount of coverage.  Again, this is an area where that ‘adverse selection’ can arise if people are allowed to bump up coverage when they receive a life-limiting diagnosis. A good insurance analysis is predicated first on how much life insurance is needed.  Once that’s determined, the type of insurance (term, group, whole life?) should be assessed.  Lastly, whether or not the employer plan is the best option should also be examined.
    • PROS of group life insurance:
      • Easy to enroll – not much paperwork.
      • Limited-to-no health underwriting. For some people with more serious health issues, the employer life insurance pool is the only place they can get coverage.
    • CONS of group life insurance
      • Limits exist to how much you can get – and usually there are limits to how much coverage can be increased from year to year.
      • You may not be able to take the group coverage with you if your employment ends (although many group plans allow you to convert a group policy to an individually owned policy).
      • Cost of insurance for a healthy individual may be substantially higher in a group pool than if they were to shop for individual coverage on their own.
    • Health Savings Accounts (HSAs): These offer some really attractive tax benefits, often include employer contributions, and, when coupled with a qualifying ‘high-deductible’ plan, can be a significant money saver for reasonably healthy participants.
    • Flexible Spending Accounts (FSAs): Often overlooked, these offer a great opportunity to pay for health care or dependent care with pre-tax dollars – and to budget for these expenses more conveniently through payroll deduction.
    • Disability coverage: Short-term and Long-term disability are often part of the open enrollment process as well.  Much like other options, these tend to be glossed over but should be considered closely, especially in cases where family members rely on the participant’s income for their support.  Like life insurance, there are limits to what can be obtained, both within employer plans and in the private market (insurers consider the lack of incentive to return to work to be another form of ‘adverse selection’).  Think through the financial implications of your loss of salary because of a disability and make sure you have coverage that meets the needs.

Benefits that AREN’T a part of open enrollment

Unlike insurance benefits, other benefits like retirement plan contributions usually are not a part of open enrollment.[2]  Many employers allow participants to change elections around retirement plans throughout the year.  This is often misunderstood and frequently, we’re asked about changes folks should be making in their retirement plans at open enrollment.  Still, since  they’re involved in assessing benefits it’s as good a time as any to look at the retirement plans available and to make sure they’re making the best use of them.

Take some time during this year’s open enrollment period to mindfully assess the options available, and make sure your selections are best meeting your individual needs.  Without postseason baseball in the way, you should have the time!

[1] How a team can score 27 runs in the first 27 innings of a series, and two runs in the next 26, is an example of ‘reversion to a mean’, but that’s another blog.

[2] One exception to this is that some ‘non-qualified deferred compensation’ arrangements only allow for an annual election – and this election is generally irrevocable, in order to conform to IRS regulations.