After some heavy rain and low-40 degree days fall has finally come to Dallas. It signals the coming of holiday shopping, family gathering, end-of-year to do list and, annual enrollment. November is the month that health insurance for individuals and families sponsored by either government or many private employers are open for enrollment.
For people who will not have private insurance, the 2021 Open Enrollment Period starts from Sunday, November 1 and runs through Tuesday, December 15, 2020. You can go to HealthCare.gov to get information on what Health Insurance Market Place is and how it works. The website also let you browse and compare health plans available for 2021 enrollment. Starting in 2014, taxpayers with low to moderate annual incomes may be eligible for a Premium Tax Credit if they purchase health insurance coverage through the Health Insurance Market Place.
If your employer continues to sponsor group health insurance as an employee benefit, you probably have already received enrollment notice from your employer by now. Whether this is your first enrollment or your fifth or tenth time, you need to take some steps to ensure you and your family get the maximum benefits while minimize future costs.
Many medium to large private employers offer their employees a benefit program including a flexible spending account(FSA) under which the employee can elect a reduction in compensation and requests those dollars be allocated to the purchase of specific benefits. The benefits that can be provided include health insurance premiums and out-of-pocket payments such as co-pays, coinsurance payments, eyeglasses, and dental care. The maximum employee contribution to health FSA will be capped at $2,750 for 2021.
The election to contribute to employee FSA is made annually before the beginning of the year for which the election will be effective. The salary reductions used to fund specific benefits in the flexible spending account are not included in the employee’s gross income and are not treated as wages for Social Security taxes. If the money allocated to your health care flexible spending account is not used by the end of the year, it is forfeited. So, the first thing you need to do is to look back and review your family’s health related costs in 2020. Or better if you can look back two to three years and detect a spending pattern for your family’s medical expenses. Doing so gives you an idea of how much you have spent on family’s healthcare and where those dollars went. Then you can elect the amount of FSA salary reductions more aligned with your family’s circumstance. Some employers, however, allow their employees up until March 15th of the following year to spend funds in their FSA. So, be sure to check your FSA’s spending deadline with your employer’s human resource department.
Next, review your current coverage and elections, and then consider the available plans to determine your needs for 2021. All employer-sponsored health plans are required by law to provide their employees the disclosure of important plan information, called The Summary Plan Description (SPD). The SPD contains important information such as how the plan operates, what benefits are provided, when an employee becomes eligible to participate in the plan and how to file a claim, etc. Another piece of document you can obtain from your employer is Summary of Benefits and Coverage (SBC). SBC helps you compare your coverage options across different types of plans.
Among the plans sponsored by your employers, there probably is a type of plan called high-deductible health plan. If you are financially able I would argue for enrolling in this type of plan to take advantage of Health Savings Account (HSA). HSA combines a high deductible health plan with a savings account. According to HealthCare.gov, for 2020, the IRS defines a high deductible health plan (HDHP) as any plan with a deductible of at least $1,400 for an individual or $2,800 for a family. An HDHP’s total yearly out-of-pocket expenses (including deductibles, co-payments, and coinsurance) cannot be more than $6,900 for an individual or $13,800 for a family. (This limit doesn’t apply to out-of-network services.) In addition, to be an eligible individual and qualify for an HSA, you are not enrolled in Medicare.
HSAs have several tax advantages. One of them is that the contributions are an above-the-line deduction reducing adjusted gross income, so taxpayers do not need to itemize their tax deductions to benefit from HSA. Another advantage is that earnings on the contributions to an HSA are not taxed currently, and the distributions used to pay for qualifying medical expenses are tax-free. Qualified medical expenses include:
- Medical expenses not reimbursed by health insurance policy
- COBRA health insurance premiums
- Long-term care premiums
- Health insurance premiums if an individual is receiving unemployment compensation
The 2021 individual HSA contribution limit will be $3,600. The limit for family HSA contribution will be $7,200. If you will be 55 before the end of 2021, you can contribute an additional $1,000.
There is no doubt that healthcare related costs are staggering in the US. You will be amazed that even improving your health slightly can potentially lower your healthcare costs tremendously.