Good news landed in my inbox recently in the form of a notification that open enrollment has begun for my firm’s annual benefit programs. I’m surprised to learn that my monthly medical premiums are decreasing by 27%. Obviously this is a generous benefit provided by my employer, but I wonder if healthcare premiums decreased or whether the firm is covering more of the cost themselves. The other surprise is that the firm is going to contribute $500 towards our Stealth IRA (aka Health Savings Account). We never say no to free money around here.
Let’s go through the options and see what decisions we need to make.
AN HDHP OR NON-HDHP PLAN?
The first is to decide between a non-HDHP or HDHP plan option. I’m a healthy (knock on wood) male with no ongoing health expenses, so I don’t anticipate spending money on healthcare other than the occasional doctor’s visit. Since I try to avoid paying insurance for things that I don’t need, I’m a perfect candidate for the high deductible health plan. To qualify as a high deductible health plan, you need a minimum deductible of $1,250. That’s fine for me, as I don’t anticipate needing to spend any money, and that HDHP gives me access to a Health Savings Account.
I’ve written about Health Savings Accounts before, but they’re truly wonderful savings vehicles and the only accounts that allow you skip taxes three ways: going in, while growing and coming out, so long as the expenses are for qualified medical expenses. An added benefit is that you don’t even need to incur the expenses in the same year you make the withdrawal from your HSA, so you can incur expenses for years and withdraw the money later (after it’s had a chance to grow tax free).
One notable change for me this year is that my firm has decided to deposit $500 into our HSA on our behalf at the beginning of the year. I’ve heard of companies doing this but it’s the first time I’ve experienced it. I assume the idea is to encourage more employees to sign up for the HDHP plan, which must save the company money. For the above reasons, I’m already on board, so I have no problem taking the extra $500.
The only quirk is that you can only technically make a qualified HSA contribution if you are enrolled in an HDHP plan that month. Some plans may allow you to front-load the HSA contribution, but you’re setting yourself up for a huge mess if you max out your HSA in the first month only to change jobs in the middle of the year and end up switching to non-HDHP plan. The Finance Buff put together a good piece on how to handle mid-year HSA changes. I bring this up because I’m not sure how the $500 contribution counts, but I assume that if I make the remaining $2,900 contributions (i.e. the max of $3,400 – $500) in equal payments of approximately $242 a month — and I leave employment or otherwise switch to a non-HDHP plan in the middle of the year – I would technically be in a situation where I’ve over-contributed. The risk for this seems pretty small, so I’m going to set up automatic $242/mo payments to the HSA and not worry about it.
My fiancé is enrolled in a non-HDHP plan through her work and it looks like we’ll be keeping that going forward, so the $3,400 limit is all I can contribute. Maybe next year after we’re married we will look into switching us both to an HDHP plan. I would love the opportunity to contribute the maximum of $6,750 to the HSA.
Previously, Bank of America provided the administration services for our HSA. They charge $30 a year in account maintenance fees, but I have options to invest in Vanguard’s S&P 500 index fund and Vanguard’s Total International Stock Market index fund, so I’ve been generally pretty happy. It’s a bummer that they make you keep $1,000 in cash at all times as I’d much prefer to have all of these funds invested.
The new benefits announcement says we’ll be switching over to Health Equity. I was able to find their brochure, so I took a look at Health Equity’s options. It sounds like “self-driven” investing is free, so I’ll be doing that. They offer access to the Vanguard Institutional Index Fund Institutional Plus (VIIIX) which is fantastic. It tracks the S&P 500 for a paltry 0.02% in fees. That means on a balance of $10,000 I’ll only be paying them $2 a year to manage my money. You need a minimum investment of $200,000,000 to join, so I’m lucky to get access to this now as I suspect it’ll be quite some time before I have a $200M portfolio.
The only thing the brochure doesn’t mention are any account maintenance fees or minimum amounts that need to be held in cash. I suspect they’ll figure out a way to charge something, but it doesn’t look like it’s going to be any more than Bank of America’s yearly charge. If that’s the case, I’ll be rolling the money from my Bank of America HSA over to Health Equity as soon as I can.
Now is probably a good time to mention that there’s no requirement that you use the HSA provider your employer picked. You can use any provider you like. There’s some hassles involved in switching providers and I don’t think you’ll be able to convince HR to wire money to your particular provider, so if you have a decent provider it’s probably not worth the additional hassle but if you’re not happy with your options I would look into this.
Another benefit this year is the unexpected 27% drop in monthly premiums. I wish there was a way to figure out if this decrease came from reduced premiums charged by the insurance company or an increase in the amount subsidized by my employer. Unfortunately, I don’t think we’ll ever get to find out. At this point, premiums are more than three times cheaper than what I paid at a previous firm (for a non-HDHP policy). I feel lucky to be in a situation to keep these costs low.
The other benefits didn’t change too much, so there’s not much worthy of talking about there. As mentioned in a previous post, transit benefits increased this year which is pretty nice. You can now use pre-tax money to pay for Uber riders.
I continue to have a basic term life insurance policy through the firm as well as short-term and long-term disability insurance. It’s on my financial list to review the firm’s long-term disability insurance and then decide whether I should be supplementing that with a separate LDTI policy. Disability is far more likely than an early death (not to mention, I’ll still be around!) so it’s something to think about. I will likely sign up for a term life insurance policy once we’re married, but for now I’m happy to “self-insure” in the sense that my fiancé could (easily) find a new husband and I have enough assets to cover a pretty fancy burial, so an untimely death wouldn’t be a burden to my family (at least, financially).
That’s a wrap for this year’s open enrollment. How did your benefits change this year?
Joshua Holt is a practicing private equity M&A lawyer and the creator of Biglaw Investor. Josh couldn’t find a place where lawyers were talking about money, so he created it himself. He knows that the Bogleheads forum is a great resource for tax questions and is always looking for honest advisors that provide good advice for a fair price.