Welcome to benefits season! While it may not be your first rodeo, there are some things physicians can do to prepare for open enrollment.
1. Enroll In The Right Medical Plan For You
Choosing an appropriate health insurance plan can be overwhelming. You will likely have to decide between four plans and network types: HMO, PPO, POS, and EPO.
A Health Maintenance Organization (HMO) plan is one of the most cost-effective types of health insurance. It has low premiums and deductibles and fixed copays for doctor visits. However, lower costs mean you’ll have fewer choices when picking providers, and you are limited to choosing in-network providers.
A Point of Service Plan (POS) offers slightly higher premiums than HMOs and also covers out-of-network doctors, though you will end up paying more than you would for in-network doctors.
A Preferred Provider Organization (PPO) has higher premium plans than HMO or POS plans but allows you to see specialists and out-of-network doctors without a referral. Copays and coinsurance for in-network doctors tend to be quite reasonable. A PPO can be a good choice if you require more insurance coverage and can afford higher premiums.
An Exclusive Provider Organization (EPO) is the least common plan type of the above options. Similar to HMOs, EPOs only cover in-network care, but the networks are quite a bit larger. Think of an EPO policy as an HMO and PPO hybrid.
The medical plan you choose will depend on your and your family’s present health needs. For example, if you have a child or are expecting, you may need a different healthcare plan than last year.
What’s Your Metal Category?
The Affordable Care Act implemented health plan tiers known as metal categories. The different tiers—bronze, silver, gold, and platinum—correspond to the premium costs and coverage levels. Check out the chart below for more information.
2. Understand The Differences Between An FSA, HSA, and HRA
Flexible spending accounts (FSA), Health savings accounts (HSA), and Health reimbursement accounts (HRA) are all tools to help you save and pay for qualified medical expenses. Which ones can you access? That depends on your medical plan.
What is an FSA?
A flexible spending account, also known as a flexible spending arrangement, is a savings vehicle used to pay for health care expenses. You deduct contributions from your paycheck, meaning they are not subject to income and payroll taxes.
You must use any money in an FSA by the end of the plan year (though employers can implement a grace period of up to 2 ½ months). Only $550 can roll over into the following year’s plan.
There are limits to how much you can contribute to an FSA. For 2022, the annual contribution limit per employee is $2,850.
FSA fact: If you pay for daycare, summer camps and/or a nanny for your children, you can save taxes by paying from a Dependent Day Care Flexible Spending Account (FSA).
What Is An HSA?
A health savings account lets you set aside pre-tax funds to pay for qualified medical expenses like medical, dental, and vision care.
One of the most unique aspects of HSAs is its triple tax benefits:
- Pre-tax contributions
- Tax-free growth
- Tax-free distributions for qualified medical costs
This account can be an excellent way for doctors to boost the tax-free portion of their savings.
The 2022 annual contribution limits are $3,650 for individuals and $7,300 for families. Individuals 55 or older are eligible for an extra $1,000 “catch-up” contribution.
We believe doctors can also benefit from HSAs because contributions roll over annually, you can invest the funds, and the money stays with you if you leave your employer.
However, most people don’t realize that you can only use an HSA with a high-deductible health plan, and the requirements can be startling.
The IRS sets annual standards for HDHPs, and while each plan may differ, they must remain within those preset parameters. Qualifying HDHPs have a minimum of $1,400 deductible and $7,050 out-of-pocket maximum for individuals, and a $2,800 deductible with a $14,100 out-of-pocket maximum for family coverage.
Remember, healthcare savings isn’t a one-size fits all strategy, and your financial team can assess your cash flow plan and help you decide what is best.
What is an HRA?
A health reimbursement arrangement is a type of health spending account the employer provides and owns. Because your employer owns this account, the funds don’t go with you if you leave.
Another key difference between an HRA and other health savings accounts is that contributions only come from the employer.
The maximum amount they can contribute is $1,800 for 2022. It’s essentially free money, so take advantage of it! Even better, the funds roll over yearly, though an employer can set a maximum rollover limit if they choose.
Which Account Is Best For You?
The answer depends on your goals and unique situation.
An HSA may be the right fit for you if you want to:
- Save money on premiums (because you can only use HSAs with high-deductible health plans)
- Rollover your money without worry
- Maximize tax savings with the triple-tax benefit
- Invest your funds
While an FSA may be a better fit if you’re interested in:
- A lower deductible
- Funding upcoming healthcare expenses
- Supplementing childcare costs
An HRA is fully funded through your place of work, so if they offer it, you’re getting access to “free” money, which could be advantageous to consider.
Strategic Healthcare Planning: A Aase Study
We had a client in a high-deductible health plan and contributing to an HSA who let us know she was pregnant before open enrollment.
We got an estimate of the average cost for prenatal care and childbirth on the different health options from HR and decided the PPO with a healthcare FSA was going to make more sense for the family’s financial situation. Once the baby was born and known to be healthy, we could switch back to the high deducible plan and HSA for the following year.
The bottom line is that healthcare planning can be dynamic, but that’s why a close relationship with your advisor is so important!
3. Recommit To Retirement
Open enrollment is the perfect time to recommit to retirement if you’ve put off saving for retirement or have been exploring other options. Your employer-sponsored retirement plan option is likely a 401k, 403b, or 457 plan.
What Is A 401k?
One of the most popular employer-sponsored retirement plans, a 401k is a tax-advantaged, retirement savings account usually offered by private, for-profit employers. When you sign up for a 401k, you contribute a percentage of each paycheck directly into the account. Employers have the option to match part of or all of that contribution. Employer contributions are more “free” money, so consider contributing at least enough to get the whole match.
There are two types of 401ks: Traditional and Roth. A traditional plan is when employee contributions are deducted from their paycheck before income taxes. So, by actively contributing, you lower your taxable income. With a Roth 401k, you make contributions with after-tax income, so you won’t owe additional taxes when you withdraw in retirement.
For 2022, the annual limit on employee contributions is $20,500 for employees under 50, while total employee and employer contributions cannot exceed $61,000. Employees 50 and older can contribute an extra $6,500.
What Is A 403b Plan?
Private non-profit organizations and educational institutions usually offer this type of tax-advantaged retirement savings plan. All employee contributions are pre-tax within a 403b.
Like a 401k plan, the 2022 maximum contribution limit is $20,500 per year, with a catch-up contribution of $6,500 for those 50 and over. However, a 403b offers an additional catch-up contribution known as the 15-year rule. This states that employees with at least 15 years of tenure are eligible for an additional $3,000 contribution payment a year.
What Is A 457b Plan?
A 457b plan is a tax-advantaged retirement plan offered mainly to state and local government employees, but some non-profit employers offer them as well. This plan works similarly to a 401k, where employee contributions come out of their payroll at the percentage of their choice.
Once again, the 2022 maximum contribution limit is $20,500 per year, with a catch-up contribution of $6,500 for those 50 and over.
However, unlike a 401k, a 457b plan does not charge an early withdrawal penalty and features a double limit catch-up provision that allows employees to contribute up to $41,000 in 2022. This could make it an excellent option for physicians looking for an additional retirement savings vehicle.
Maximize Your Employer-Sponsored Account
There are many ways to leverage your employer-sponsored account beyond maxing it out.
- See if your employer allows after-tax contributions. Doing so enables you to go over and above the annual limit. But those funds would be after-tax. This strategy opens up additional planning opportunities like converting the after-tax portion to a Roth 401k, Mega back door Roth IRA, or Roth IRA conversion.
- Take advantage of an employer match. If you cannot max out your plan, try contributing enough to qualify for the entire match.
- Choose your investments carefully. Most plans offer various investments to choose from. Your goals, risk tolerance, and time horizon can help determine which investments are suitable for you.
Remember, if your circumstances change, you can adjust your retirement contributions anytime during the year.
4. Procuring Proper Insurance Coverage
Physicians must properly protect their wealth to minimize risk levels. It’s important to carefully select your insurance coverage and it’s never a bad idea to consult an expert before you make a decision.
Life insurance would protect your family’s financial well-being if you were to pass unexpectedly.
There are two types of life insurance policies: term and permanent. Term life insurance gives you coverage for a fixed period, while permanent life insurance is designed for lifelong financial protection.
Term life insurance tends to be the least expensive option, so some physician families benefit from purchasing a little more than they think they need to account for future inflation or other variables.
How much life insurance do you need? The amount and type of life insurance is unique to you—no two doctors’ needs are the same. Your financial advisor can help you determine this based on your expenses and financial goals.
Due to high income and debt levels early in their careers, many physicians benefit from purchasing less insurance via their employer and more into individual policies (unless you have a preexisting condition that would increase premium costs). That way, we can help shop around for coverage, and a personal policy is portable, meaning you can take it with you should you change jobs.
If you become injured and can no longer work, disability insurance provides you with income to live on. Unfortunately, most doctors don’t have enough disability insurance which puts their financial well-being at risk.
There are two types of disability insurance: short-term and long-term.
What Is Short-term Disability Insurance?
Short-term disability insurance kicks in if you become injured or sick and unable to work for up to 6 months.
Employers often provide this as a base benefit, and many don’t purchase a separate policy. While a short-term disability can certainly be inconvenient, it likely won’t derail your financial goals as long as you have an emergency fund or other cash reserves.
What Is Long-term Disability Insurance?
Long-term disability insurance pays out if you are sick or injured and unable to work for more than 3 months.
A long-term disability can quickly derail a physician’s financial plan, so exploring your options is important. Many specialized physicians find that purchasing an individual policy gives them more complete coverage, but you may also decide to bundle an individual and group policy via your employer.
So how much coverage do you need? Generally speaking, you can’t cover 100% of your income with disability insurance; however, most insurers will allow you to cover 80% of your tax-home income (after tax, of course). Women physicians also have additional factors to consider when deciding on coverage amounts.
Often employer coverage is more general rather than specialized, so we encourage our clients to explore less disability insurance through their employer to leave more room to max individual policies that offer broader coverage.
Personal Liability Insurance
Personal liability insurance, also known as umbrella insurance, is additional insurance coverage that kicks in after other policies have been paid out. This type of policy typically covers:
- Bodily injury
- Property damage
- Libel and defamation
The amount of personal liability insurance a physician needs depends on the value of the assets you want to protect. The more valuable your assets are, the higher your umbrella should be and vice versa. As a high-income earner, your liability limits must be able to cover what’s most important to you.
Evaluate group policies with your financial advisor to help determine if you also need an individual policy.
5. Evaluate Fringe Benefits
People often forget about the extra perks that come with their benefits package. As you go through open enrollment and evaluate your options, it’s essential to take note of a few things besides insurance, including:
- Student loan assistance: Some hospitals may offer assistance with paying student loans, usually up to an annual cap. If this is important, you could bring it to the negotiation table.
- PTO and sick time: Be sure you have the flexibility you need to take time away from work. Time off can help prevent burnout, something physicians have keenly felt throughout the pandemic.
- Continuing education: Employee development is vital for growth and success. Having access to seminars, conferences, and training sessions is a necessity.
- Dependent care flex spending: This is a pre-tax benefit account that can fund eligible dependent care services like summer camps or childcare. Doctors are phased out of most child tax credits, but contributing to this account allows you to save pre-tax money for child care expenses.
These benefits can be just as valuable as salary, so if you aren’t satisfied with the options, it’s important to discuss your concerns as part of a contract negotiation.
Connect With A Team of Experts
Open enrollment can be overwhelming, even if you’ve been through it multiple times! With every open enrollment season, your needs may change, so take this time seriously.
If you need help navigating insurance options and other benefits, get in touch with our team at Vestia.
Investment advisory services offered through Vestia Personal Wealth Advisors, Vestia Retirement Plan Consultants, and Vestia Advisors, LLC. Securities offered through Ausdal Financial Partners, Inc., 5187 Utica Ridge Rd, Davenport, IA. 52807 (563)326-2064. Member FINRA/SIPC. Vestia Personal Wealth Advisors, Vestia Retirement Plan Consultants, Vestia Advisors, LLC, and Ausdal Financial Partners, Inc. are independently owned and operated.
This material is intended for informational purposes only. It should not be construed as legal or tax advice and is not intended to replace the advice of a qualified attorney or tax advisor. This information is not an offer or a solicitation to buy or sell securities. The information contained may have been compiled from third-party sources and is believed to be reliable. All investing involves risk, including the loss of principal.