How to Evaluate Employer Benefits During Open Enrollment
Tim Baker and Tim Ulbrich discuss how to best evaluate your employer benefits as you get ready to make selections during open enrollment.
Summary
On this podcast episode Tim and Tim discuss open enrollment for pharmacists and how to evaluate employer benefits during this period. They discuss health, life and disability insurance, retirement plans and HSA and FSA accounts. As a YFP financial planning client, a CERTIFIED FINANCIAL PLANNER™ works with you to understand your benefits and choose the options that work best for you and your financial plan.
Tim Baker explains that pricing for medical plans can vary greatly depending on factors like age, location, tobacco use, whether the plan is for an individual or family and the plan category (i.e. bronze, silver, gold, platinum). When it comes to deciding which plan is going to work best for your needs, Tim suggests choosing a plan that will match your use best and to not pay for a more expensive premium if the coverage isn’t being used. Similarly, if you don’t have an adequate emergency fund, it may not be wise to pick a high deductible health plan (HDHP). Tim shares that you have to think about your life plan, age, whether you have pre-existing conditions and how often you’ll need to go to the doctor when deciding on a health plan.
When it comes to life and disability insurance, Tim suggests having coverage if you have a spouse or a family that’s reliant on your income. However, life or disability insurance offered by your employer may not be sufficient. If that is the case, you’ll have to look into purchasing additional coverage. Tim also discusses employee sponsored retirement options like a 401(k), 403(b), or TSP as well as stock options, FSA and HSA accounts.
As we are in or nearing the open enrollment period for many pharmacists, Tim recommends taking a look at what’s being provided or offered by your employer, asking your HR department for help and being intentional with your decisions as these benefits are an often overlooked part of a financial plan.
Mentioned on the Show
- YFP Planning – Comprehensive Fee-Only Financial Planning for Pharmacists
- YFP 166: Why Negotiation is an Important Part of Your Financial Plan
- YFP 044: How to Determine Your Life Insurance Needs
- YFP 045: How to Determine Your Disability Insurance Needs
- Protect Your Income With Life and Disability Insurance
- YFP 072: Investing Mind Tricks: How Behavioral Bias Affects Our Decisions
- YFP 073: How to Determine the Priority of Investing
- YFP 074: Evaluating Your 401k Plan
- YFP 075: DIY, Robo or Hire a Planner?
- YFP 076: Investing Rapid Fire Q&A
- YFP 163: Investing Beyond the 401k/403b
- Email Your Financial Pharmacist: [email protected]
- YFP 165: The Power of a Health Savings Account
- Join the YFP Facebook Group
Episode Transcript
Tim Ulbrich: Tim Baker, excited to have you back on the show.
Tim Baker: Yeah, thanks for having me. It’s been a long time since I’ve been on I think a full episode.
Tim Ulbrich: So today, we’re talking all about evaluating employer benefits, navigating open enrollment. Obviously the goal is to provide that information heading into that season. So Tim Baker, you talk with our financial planning clients at YFP Planning about evaluating and understanding the employer benefits. So why is this an important part of the financial plan and something that needs to be covered among other topics?
Tim Baker: Yeah, so I think there’s really two different ways to look at it. You can look at it as like a new hire to a company and evaluating the compensation package in total, so you know, basically salary and all the other benefits that come with the offer, versus kind of your in the company and you’re just evaluating the package that comes up for open enrollment every year. I think we’ll probably focus more on the latter. But I think this is really important. And I sometimes see this with clients or kind of after the fact with clients where they’re like, “Hey, I was making $120,000 per year. And I got this offer to make $130,000 or $135,000.” But then when you actually dig into like what they are moving to in terms of like a new 401k or match or a bonus or the health insurances that are provided, the plans that are provided, you have to dig a little deeper because they potentially take a step back in a lot of ways that are not just tied to the paycheck. I think it’s important, again, to look at this in totality. But I think it’s also — especially when we talk about health insurance, this is most definitely a plan. And you want a plan in place for the purposes of health insurance. When we get into talking things about life insurance and disability, I kind of view that as more as a perk. So not necessarily a plan — and we’ll kind of talk about the difference there. So yeah, super important because what we talk about at YFP, our mission is to empower pharmacists to achieve financial freedom. When I kind of speak day-to-day with clients with their particular financial plan, we go a little bit more granular. Our job is to help grow and protect income, which is the lifeblood of the financial plan, grow and protect net worth, which is essentially what sticks while keeping your goals in mind. So a big part of this of what we’re talking about is the protection. And you know, if you have a health incident or a disability and things like that, we want to make sure that we’re properly protected so some type of catastrophic event doesn’t get in our way. And that’s kind of what this is really all about.
Tim Ulbrich: Yeah, and as you mentioned, Tim, we will focus more on the side of those that are post-accepting that position, they’re either recently employed with that company, trying to make that selection as a part of onboarding or probably for most of our listeners, going through the open enrollment season as they look out to the New Year. But Episode 166, when you and I talked about why negotiation is an important part of the financial plan, we did talk about some of these components as potential differentiators or at least things to consider as you’re evaluating an offer and how these are the things that you will start to see some significant variance, perhaps from one offer to the next and so why it’s important to look just beyond that salary. So Tim, whether someone is reviewing their benefits for the first time, again, after accepting a new position or probably for most of us, going through another round yet again of open enrollment, there’s lots of benefits that are connected to the financial plan that one needs to consider. And we’re going to talk about health, life, vision, dental to a lesser degree, and disability, and of course, retirement accounts and HSAs. So we’ve talked about each of these on the podcast at one point or another. But this is another example where we try to bring various parts of the financial plan, take a step back and look at some of these components in its entirety and how they can impact one another. So let’s start with health insurance. And again, I don’t want to spend as much time on dental and vision as I think in my experience, there’s not necessarily a whole lot of option here. And typically, the price tag is smaller, of course, than you’ll see on the medical side. So Tim, why does medical coverage pricing vary so much? And I’m sure that’s something we’ll talk about, the variance that’s there. And talk to us about some of the key pieces that our listeners should be thinking about as they’re evaluating the medical coverage.
Tim Baker: Yeah, so I think the big driver in why health insurances are different and differently priced across companies is the law states that there are really five things that account for when setting premiums. One is age, so there’s a stat that says premiums can be up to three times higher for older people versus younger. It could be location, so that could be a big thing. I know when we were introducing health insurance, we have employees that work all over the country. And every state has different rules and local rules, and cost of living can also account for this. One of the things, which is kind of interesting to me — and I understand why but things like tobacco use, so insurance can charge tobacco users up to 50% more, some other of those sin activities maybe not necessarily accounted for, individual versus family enrollment, so you can charge more obviously if it covers for a spouse or a dependent. And then probably the big thing is like the plan category.
Tim Ulbrich: Yeah.
Tim Baker: And I think you want to have I think choice. But you have different categories, and these are typically based on kind of your out-of-pockets versus what the insurance company is paying. And these range anywhere from the bronze, which are typically the high deductible health plans that are typically kept coupled with HSAs, silver, gold, platinum. So these are the different levels that you typically see. Not all companies are going to offer every level. They might offer one or two or even three, but typically, again, the bronze plans usually have lower monthly premiums and higher out-of-pocket costs where platinum are typically higher premiums with lower out-of-pocket. So the insurance for the platinum covers a lot more. But you’re paying more out of your paycheck. So those are typically why we see varying — and I think just with going on with healthcare is everything, it seems like it’s becoming more expensive. And there’s a lot of stats that this is one of the highest — you know, we talk about student loans and things like that. But healthcare is definitely up there with regard to, you know, the inflation of it year after year.
Tim Ulbrich: Yeah, point well taken, Tim, on that. I know many business owners feel that. In my experience on the academic side, a couple occasions I’ve been involved in helping our HR team evaluate medical benefits for our employers. And you just see some of the data about annual increase in healthcare costs. And I think employers are constantly trying to think of how do we offer a valuable benefit for our employees but also with an increase in costs, you know, how much can they shoulder versus they pass that on to the employees? And so I want to think through a scenario, Tim. If I’m somebody listening or perhaps a client of yours at YFP Planning, maybe I’m faced with lots of student loan debt, I’ve got competing priorities beyond the debt, I’m thinking about maybe getting in a home, I’ve got obviously other priorities that are tugging at my monthly income and at the end of day, there’s only so much to go around. So I think people get into open enrollment, especially on the healthcare side, and they see these bronze, silver, gold, platinum, and you start to ask the question of like, wow, there’s some significant differences potentially in premiums of what’s coming out of pocket per month as well as what could come out of pocket per month if there is coverage that’s utilized in the form of either deductibles, copay or coinsurance. And so I think there’s this constant question of like, what do I want to be paying out per month? And could I use those monies elsewhere versus how much do I want to play defense in the case that something would happen and not have to necessarily have a huge deductible that would come out of pocket? So how do we coach clients through that decision and that choice? And maybe better framed is kind of what questions are you asking or things that you’re getting them to think about?
Tim Baker: Yeah, so it’s definitely one of those things what you want to look at it comprehensively. We always talk about like the financial plan cannot be looked at in silos. So you can’t just look at the tax situation versus the investments versus insurance. You really have to look at the broad scope of things. And you know, that’s why I think having what we use as a client portal where we’re looking at everything at one time is so valuable. And most people, their finances are scattered between banking and investments and insurance, all that kind of stuff. So having that all tied in and having someone look at it objectively I think is important, to start. One of the things that I equate to is if I’m working with a healthy 30- to 35-year-old, for the most part, I’m asking questions about how often are you going to the doctor? Are there any pre-existing conditions? And again, we obviously build up a rapport to the point that we feel comfortable asking those questions. But the idea is we don’t want to have — we don’t want to pay for a Cadillac health insurance plan if we’re never going to drive it, you know? So the joke that I kind of make is for a lot of our clients that because they’re scared of the unknown, they might go and do a gold or a platinum plan, but it’s almost like my parents, who are older and kind of newer to a smartphone, it’s almost like giving them unlimited data. They’re just not going to use it, you know? And no offense, Mom and Dad, if you’re listening to this. But that’s the thing is like you want to match use. And it’s kind of like a cell phone plan. Some people, they’ll buy the Cadillac plan and not use it all, the data and the minutes, etc. So like the — I don’t know if minutes are even still a thing. But anyway, the point is is that we want to match the need with what we’re actually going to use. So those are some of the thing that we go through. And oftentimes, you can step down and maybe free up some more cash flow so there’s less coming out of your paycheck. But then, you know, we just want to make sure that we have things like an emergency fund that we can cover the deductible and obviously the maximum out-of-pocket costs for that year. The other thing that I think plays a part in this that we talk about is just — and it goes back to their life plan — is if I’m working with, again, a 30-year-old family and they’re thinking about having kids, is kind of timing that up. So it’s almost like an annual, like we talk about almost like an annual open enrollment optimization meeting where yes, if we’re looking at adding baby No. 2, maybe we don’t want a high deductible health plan with the HSA. Maybe we just put the HSA on ice, move up a plan or two so we have a little bit more coverage and we feel a little bit more comfortable, again, with those hospital bills and all the doctor appointments, etc. So those are the things that I think come into play. And we have clients that are like, yeah, I just, I go to the doctor a lot because I have this issue or this issue or it could pop up, and it’s almost like what we talk about the emergency fund, if you have a couple and one of them really wants $25,000 in the emergency fund although the calculation says we only $15,000 or $20,000, it’s not even worth the argument. Just pay the little bit of extra and have that comfort level. So those are all the things that I think at the very least, what we want to do here is — and I’m going to say it — we want to be intentional. We want to be asked those good questions and really do that on a year-to-year basis. So those are the things that we’re looking at when we’re kind of discussing the health stuff with clients.
Tim Ulbrich: Great stuff. And then let’s shift gears to talk about life and disability. And I want to first mention, we’re not going to obviously get in the weeds on all things life and disability insurance. Both can be a topic of their own, and they were a topic of their own, Episode 044, How to Determine Your Life Insurance Needs, Episode 045, How to Determine Your Disability Insurance Needs. We also have a lot more information on the website, YourFinancialPharmacist.com. But Tim, one of the most common questions I know that I get, I’m sure that you get, is do I need to purchase additional life and disability insurance beyond what my employer covers? So we’re getting into this what do I need and is what my employer provides enough? Or do I need additional coverage? So again, through the lens of how you’re coaching a client through this, how do you coach them through it? Are there questions that you ask to help uncover this answer?
Tim Baker: Yeah, so it’s going to be my stock answer of it depends. So if we look at life insurance from that perspective, actually life and disability I’ll say kind of the blanket statement that I kind of led the episode with is this is where we kind of venture from it being a plan to a perk. Just like we’ve seen with pensions and some other things, like it could be that in five, 10, 15 years, that these types of benefits are no longer offered by the employer. It’s just one of those things that it’s a suck on the cash flow of the employer and they go away. And this is me speculating, but when we look at life in particular, typically what I say to clients is sometimes it angers or annoys me when I see a client that is 28 that has no kids, no spouse, really just student loans and they’re paying premiums on a permanent whole life insurance outside of what the employer provides. So the caveat, you know, what I typically say to clients is when you have a — for life insurance, when you have a house, a spouse, and mouths to feed, that’s typically where you need some life insurance. So there’s other people that are dependent on you and your income. Now when it comes to the group policies, most of these are actually provided to you for free. It’s just one of the benefits. And it’s typically kind of the more on the not-so-great is like a flat $50,000 benefit that your beneficiary would receive. Or it’s typically a multiple of income. So it’s typically 1 or I just met with a client that had a 2.5x base, 2.5 times their base income was their benefit, which is pretty good. So if I make $100,000, I either get 1x or 2.5x, it just depends. And then you also have the ability to buy up voluntarily. So to me, you know, the problems with group policies is that there’s limits on actually how much you can get. Most of the individuals that we work with, they check off those boxes that they’re going to need $1 million+ in insurance at least. So there’s limits on the group policies. There’s portability. So if you just a group policy and you work with that company until you’re 42, and now you go and work with another company at 42 that doesn’t offer health insurance, I would rather you have bought that policy at 32 or 35. Now you have to go out and buy another policy yourself individually, it’s going to be that much more expensive. And the thing in life insurance is that typically, to buy it on your own, it’s not going to break the bank for most people. So the group policy for life insurance, it’s nice, it’s a perk, but not necessarily — most people are going to need to buy something outside of that. For disability, the same is true if not even more so. So typically, this is based on a percent of your income, so a 50-60% benefit. The biggest issue I have with group disability policies is that the definition of disability, which is sometimes really hard to find out what that is. So if you go back to that episode we talk about own occupation versus any occupation. So the big difference — so own occupation is the inability to work or engage in your own occupation versus any occupation, which is the inability to engage in any occupation. So the big thing I say to clients is if you have an any occupation — Tim, if you have an any occupation disability policy, and you get bumped on the head and you cognitively no longer can do your job, and you submit a claim, they’re going to say, “Well, Tim, we’re sorry about your situation, but we’re denying your claim because you can still bag groceries,” or something like that. So a lot of these group policies will be own occupation for a set period of time, maybe two years or three years. And then they switch to a any occupation. And to me, it’s kind of like a wolf in sheep’s clothing because you’re thinking like, oh, I have this long-term disability policy that’s going to cover me for a long time. And to me, I would almost rather them give you some type of stipend to go out and buy your own. So those are typically the conversations that we have with clients, for most of the clients that we work with, if not all, there is no spouse, mouths, house to feed kind of check box. Typically, if you are a pharmacist, you want to protect the income that you have worked so hard to basically earn. So for most people that we work with, that is definitely something that is often the biggest risk that is not necessarily felt by that particular client. Those are the things that we have to kind of like educate and talk through. So — and so much with the life — to kind of wrap up this answer, so much with life and disability is that you always think it’s going to happen to somebody else until it happens to you. And then that’s where we go down the path of like, this is a catastrophic event. How do we pick up the pieces from here? And those are just not conversations that we want to have.
Tim Ulbrich: Yeah, great stuff. And again, Episode 044, How to Determine Life Insurance Needs, Episode 045, How to Determine Disability Insurance Needs, we talk about some of those definitions in more detail, tax considerations, transferability issues, how to calculate your need. Tim, ironic you use the example of bagging groceries. So my very first job outside of working for the Ulbrich family business was bagging groceries at Top’s Supermarket, shoutout in Buffalo, New York. I loved it. One of my favorite jobs. And to this day, when I go grocery shopping, I have a hard time watching them bag groceries because I know, I know I can do it more efficiently. So one of my favorite work experiences. Alright, so let’s talk retirement. And again, a topic we have talked about at length on the podcast, long-term savings. We did an investing series, episodes 072-076, all about investment vehicles, retirement vehicles, tax consideration, fees. And most recently on Episode 163, we talked about investing beyond the 401k/403b. So Tim, my thought here is spending a few moments as people are going into just evaluating their benefits as a whole, we obviously know depending on where they work, they might be looking at a 401k, a 403b, a TSP, a Roth version of that. But taking a step back to say, before they just jump in, what are some general considerations that they should be thinking as it relates to those options available, options available outside of the employer? And again, how this fits in with the rest of the financial plan.
Tim Baker: So this can be fairly significant with regard to your financial plan. Like we work with clients that, you know, the 401k is stellar. And I actually had one of these meetings last night. The 401k for the wife was stellar, and good match, costs associated with the 401k were very minimal, good choice in terms of the investments that were there, versus the husband that his 401k was something like 30x more expensive. And the match was similar, but it was more — it kind of became more discretionary, meaning they would kind of evaluate it from year to year. Again, not a great investment selection, so these are the things — and I would say that this is really, really hard to kind of discern for yourself. So we have tools that we use that are very helpful, very expensive but very helpful to kind of help us crack the nut on the 401k. So it allows us to really kind of connect to these types of plans and evaluate them for the client and actually say — and the discussion that I had last night with a client was like, I said, “Look, you’re putting in 8% into your 401k, and they’re matching 4%. But the money that goes inside of that 401k is just being eroded at a rate that’s like 30x more if we put it into an IRA.” And that’s associated with the costs there. So what a client — and it’s easier to talk about this with round numbers, but if the client had $100,000 in their 401k, every year that 401k was basically charging that client like $1,200 versus his wife, which was like $20. So if you extrapolate that over 20-30 years, those are real dollars. And the problem with this is unless you can dig into the IRS forms that the plans file every year, it’s really hard to figure out what you’re actually paying. And that’s, to me, it’s a really big problem. So just like the health insurance kind of question, you’re kind of operating in the sandbox that they provide you with the 401k. So you’re going to be provided sometimes multiple options, it could be a 401k, a 403b, a 401a, you know, there’s different flavors. But you typically have, again, a set amount of investments inside of that, 20-30 funds that you are selecting from. And I would say it’s more important I think to have lower cost options within that versus a variety of — you know, one of the most efficient retirement plans out there is the TSP. And they have like six funds plus some target date funds. So it’s not a whole lot of choice. But the costs there are super low. So those are the things, as you are evaluating your employer’s plan, you have to kind of say, you know — and the discussions that we have is kind of what I was saying with the client that I recently met with is does it make sense to again get the match, get the free money, but then look outside to other accounts, whether it’s an IRA, even a taxable account, if there’s a side business maybe there’s a SEP IRA option or something like that, again, this is a little bit harder just because the information that you’re looking for is often buried in an IRS form. But it’s really, really important because if you look at the scenario that I brought up, that’s potentially hundreds of thousands of dollars, and that’s not an exaggeration if you extrapolate that over a career. So that’s really important. And for a lot of us, the 401k is going to be the biggest asset that we manage. And it’s important to get that right. So just a lot of moving pieces.
Tim Ulbrich: And I think, Tim, this is easy — I’m just speaking from personal experience — easy to kind of put this on autopilot of eh, it is what it is, it’s what I have. And I think really spending the time to dig in and understand not only the basic things like what are they matching? But also the investment options or choices, and you start to get into asset allocation, understanding fees. And some of that’s transparent, some of it’s not, so seeking help where you need to have help. We’re really investing the time because every year that goes by where there’s something like fees that are being taken out of what could turn into longer-term compounded returns, obviously there’s an exponential factor in that. So it’s worth spending the time. And that’s my challenge to the audience going into this year to really dig in deep here if you haven’t yet. Tim, I’m thinking of a small but important group of our audience, specifically probably some of our friends in the pharmaceutical industry space that may have some stock options available to them. I know we get this question often when we’re speaking with fellows — and a shoutout to MCPhS, a fellowship program. We’re actually going to be talking with them next week. And so that’s what had me thinking about this. You know, of course we know these options can vary from employer — one employer to another in terms of not only what they offer but of course the individual company and the outlook on that company, so there’s no black and white answer here. But what are some general considerations around stock options that folks should be thinking about?
Tim Baker: Typically, the big distinction that we want to make here is it’s not necessarily stock options that we’re dealing with. Typically, stock options is where you can buy a stock at a much discounted price sometime in the future then potentially sell it for what it actually selling for on the market. And there’s a variety of ways to kind of look at that and do that. Typically, what we see in higher levels of management, community pharmacy in kind of the big chains or in industry is RSUs, Restricted Stock Units. And this is not to be confused with employee stock purchase programs, which is kind of a savings account that you defer money into and then at the end of the quarter, you buy stock at a discounted price. It’s kind of almost like another way to save. So what an RSU is, what we’re talking about here, is think of it as compensation that is in the form of stock. So if I’m trying to hire you, Tim, to my pharmaceutical company, I might say, “Hey, Tim, I’ll pay you $130,000 and then we’ll award you $10,000 of stock over the next five years,” that’ll have some type of vesting period. So let’s pretend that we — after Year 1, we give you 100 shares. And then you know, that vest — and then what that means is that you have to work for a set amount of time for that to actually become yours. It’s in your account, but if you leave, it’s not necessarily there. The next year, maybe now have 200 shares and maybe that first 100 has vested. So if you leave, you can cash out that first 100. So it’s a creative way to provide compensation outside of what’s in your paycheck. So a lot of the considerations that we have to look here is again, what is the vesting period? They’re kind of golden handcuffs. What are the tax consequences? So when to basically sell them and if you have to pay capital gains tax and what that looks like. So those are all kind of things that we want to coordinate with not just the portfolio and the allocation that you have but also the tax ramifications that are there as well. So the RSUs are a beautiful thing, and we’ve been working with clients that get awarded, and it’s great to have that money there. But it’s also how does this plug into the greater financial plan and how can we do it in the most efficient way possible from an allocation but then also from a tax perspective.
Tim Ulbrich: And as we wrap up this section on retirement options and savings, employer-sponsored retirement, for those that are listening that perhaps your employer doesn’t offer one — I’m thinking about some of our independent pharmacy folks or you look at your option and say, “Wow, these are crazy. Is there a better way forward?” We’d love to talk with you about that. I mean, I think that’s an area that we’re interested in seeing an opportunity to help. So you can shoot us an email, [email protected], and we can set up a time to discuss that further. So Tim, last piece here before we talk a little bit about the open enrollment logistics and some considerations for the actual process itself. I want to spend a couple moments on FSAs, HSAs. I think these are often confused. I know we’ve talked about this on the show before, but it couldn’t hurt as a reminder as some folks may have an HSA available, some may not. Some may have an FSA and don’t want them to confuse that with what an HSA is. So talk to us about an FSA/HSA difference and considerations as they’re evaluating these options.
Tim Baker: Yeah, so I think the big difference between the FSA and the HSA is FSA I think — or FSA is a pass-through account, meaning it doesn’t accumulate over many, many years. So you essentially set up an FSA, which could be for healthcare, it could be for dependent care, through your employer. And it’s an arrangement that lets you pay for many out-of-pocket medical expenses or childcare expenses with tax-free dollars. So it’s allowed — from the medical side, it’s allowed for things like copayments and deductibles, prescription drugs, medical devices, etc. On the dependent care, it’s things like daycare costs, camps, etc. So with the FSA, if the money is left at the end of the year, the employer can typically do one of two things, not both. They typically can either give you another couple months, like typically 2.5 months to spend the leftover money. So let’s pretend I have $1,000 in my FSA at the end of 2020, I’m given until mid-February to spend that money. Or what they can do is they can let you carry over up to $500 into the next plan year. So if I have $1,000, I have to spend $500, and then I can carry over the other $500 into 2021. Anything above and beyond that is lost, which is why I just don’t like these types of plans. I mean, they’re good to shelter you from tax, but you’re kind of like — you’re kind of trying to guess some of the things that are maybe not as predictable as we might think. So it’s one of those things that we would fund with things that we know we’re going to have to pay. So if we know we’re having daycare that costs us x amount of dollars, we know we want to fund it at least for that. Or if we know that we’re going to have these particular costs for health, we want to fund it with at least that. So that is the FSA. The HSA, on the other hand, is an accumulation account — or it can be. It can also be a pass-through account. So the HSA is the only account that has a triple tax benefit, which means it goes in pre-tax, it grows tax-free and then if it’s used for qualifying medical expenses, it comes out tax-free. So it completely misses the tax man at every step. So the big difference, though, is that I could put $2,000 into it this year, as an example, and not spend it. And then next year, I could put another $2,500 and not spend it and actually invest it. You know, invest it almost like an IRA — similar to an IRA — and basically use it as an accumulation account. So a lot of people use it as a stealth IRA. And this is what we do is that we try to cash flow our medical expenses and just leave the HSA alone. And the idea is that it’s just another bucket of money that we’re funding that can be used for retirement sometime in the future or it could be used for hey, in 2022, we had a health thing that pops up that we really need to pull that money from. So there’s a lot of flexibility and power in the HSA. With the HSA, you have to have a high deductible health plan. So if you have one of those gold health plans, you’re not going to be able to fund an HSA. The deductible won’t be in line. So those are the big differences between the FSA and the HSA.
Tim Ulbrich: And we talked, Episode 165, Tim Church and I talked about the power of the Health Savings Account. Make sure to check that out. We talked in more detail about what you had summarized there, talked about some of the contribution limits, the definitions of high deductible health plan and got in a little bit as well of the differences between that and an FSA. And I couldn’t agree more, Tim. I think for people that have access to an HSA, if they can leverage the benefits that you suggested, great. Many people may not have access to one and so really looking at the FSA as is that an option for saving for planned expenses you know that are going to be coming up in the following calendar year? So we’ve talked about a lot, Tim. We talked about health insurance, life and disability, retirement, as well as the FSA/HSAs, and I want to wrap up by summarizing the open enrollment process. What exactly is it? And then what are some considerations for our listeners as they head into this season of open enrollment?
Tim Baker: Yeah, so open enrollment is typically a time, it’s a time period that every employer has. It’s usually held annually. A lot of them have them this time of year. Sometimes they’re in the summertime, sometimes in spring. But for the most part, we see them in kind of the September-October-November time period. So it’s a time for the employee to basically select their benefits or their health plan or whatever for the next year. So you know, the open enrollment period sometimes can be glossed over and they’ll just say, “Hey, well, I’m just going to kind of keep the status quo.” The problem with that is that oftentimes these plans are changing, you know, every year they’re changing with costs and everything kind of moving. But I think the way that we approach it with clients is one, to be a — kind of to be a sounding board for them. And we often, what we’ll do is we’ll log onto the benefits portal with a client, and we’ll just kind of go — we’ll review the packet that maybe they’ve sent out to us and we’ll read through it and we’ll kind of just provide comments and ask questions. And then sometimes we’ll actually log on and actually go through their open enrollment and say, “Hey, let’s opt into this. Let’s opt out of that, we don’t need to be paying for that, etc.” So the thing that I would say for listeners is to really take a look at what your employer is providing. And if you have questions, this is another thing that we do — because sometimes it’s not apparently clear what the benefit is or what it covers, etc. is put your HR people to work. I often ask the question — and I actually have this conversation. I’ll say like, “Is your HR person any good?” And they’re like, “No, not really.” So we can formulate good questions and then basically if we can take them all the way to finish line in terms of what they need, great. But if sometimes we have to go back to the HR person and say — and have the client or the employee say, “OK, like can you explain this a little bit more about –” we just had one that’s about the definition of disability and what that looks like. And this particular client, their company was going through a merge, so there was a little bit of kind of just unsure about what it’s going to look like going forward. But to me, this all goes back to the I word, which is be intentional, review your stuff, kind of take stock of where you’re at in your life, what you think you need, what you don’t need. I would say one of the things that I often see is that this is one of the things that is overlooked in the financial plan. And it’s kind of a microcosm of insurance. It’s like, ah, I don’t need insurance, or ah, it won’t happen to me and ah, I don’t want to take the time to read through it. And I get it. I mean, some of these packets that we get are 100 pages long. It’s 100-page PDF. And we can basically go through it fairly quickly and kind of pull out, extrapolate the information that is most important, provide good, sound recommendations. But it is one of those things that is important and you know, you want to — to me, it’s about optimization and making sure you’re using best use of everything that is kind of available to you, whether it’s, again, salary, insurance, etc. So those are the things that I think should be top of mind for someone as they kind of go through this period of open enrollment.
Tim Ulbrich: Yeah, that’s a great recommendation. It reminds me a little bit of the advice that we give to recent graduates of hey, don’t wait until the grace period’s up to make your decision and do your homework. So now is the time to really be understanding some of these nuances, the options that are available, looking at it in the context of the rest of your financial plan, reaching out, getting some help, so that once you get to that open enrollment period and you have that meeting or that webinar and you get that packet of information, you’re ready to hit the ground running with evaluating that further and making those decisions.
Tim Baker: The HR person should be able to like contact the insurance or even like the 401k, like I’ve come back with clients and I’ll say to the 401 provider, “Why are these fees the way they are when there are options that are much, much cheaper?” So you know, you — I mean, the HR person might not be able to answer the question directly. You know, sometimes it’s like, well, I don’t know that. But then to me it’s push the issue. And it’s like, well OK, can we talk to the people that do know these questions, whether it’s an insurance question or a 401k question, etc. So to me, it’s like don’t be shy about this. This is important. It’s a crucial part of your financial plan and your livelihood. So to me, those are questions that we want answers to. So I would just say, kind of squeaky wheel gets the oil type of thing and make sure that you’re putting the professionals that get paid to provide these services, put them to work and make sure that you’re satisfied with the outcome.
Tim Ulbrich: Yeah, especially for those listening that feel like they have some cruddy options available because those are the individuals that are often making the decisions, they’re getting in front of the reps that are providing them with the options, so you know, there might be an opportunity to do some direct or indirect education on oh my gosh, I had no idea about the fees or what other options may be out there. Because at the end of the day, you know, to defend some of these HR folks, many of them are busy with a lot of things and sometimes it’s easy to renew a package rather than really taking the time to evaluate what else may be out there and be of benefit to the employees. So Tim, great stuff, as always. And to the YFP community, we appreciate you taking time to join us on this week’s episode of the Your Financial Pharmacist podcast. If you liked what you heard on this week’s episode, please do us a favor and leave us a rating and review on Apple podcasts or wherever you listen to the show each and every week. And if you are not yet a part of the Your Financial Pharmacist Facebook group, I hope you will join us. Over 6,000 pharmacy professionals strong, helping one another and committed to helping one another on their path towards achieving financial freedom. Have a great rest of your week.
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