Auto-Renewing During Open Enrollment Could Cost You
Life tends to happen all at once.
I was recently sitting in a doctor’s office when my wife texted to say she was driving our 3-year-old to the emergency room. Our daughter had tumbled into a coffee table, leaving a gash on her ear. Everyone is fine, and she now tells everyone that she got her ears pierced.
With open enrollment season upon us, the timing was a fitting reminder of why I encourage clients to send me their benefits packets every fall.
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For many families, open enrollment is simply an exercise in checking boxes. Review the premiums, confirm the dependents and click “same as last year.”
However, your financial situation might not be the same as last year. Changes will impact how you protect yourself and your family. In some cases, your financial success might open the door to new opportunities.
When savings change the math A big deductible looks different when you have a cushion. When a client has spent the year automatically sending money into a taxable investment account, I pat them on the back.
Then we talk about what the account makes possible. With savings ready to cover an emergency room visit, a high-deductible health plan moves onto the table.
Consider a hypothetical family choosing between two plans:
- A traditional plan with a $1,500 deductible
- A high-deductible plan with a $5,000 deductible and premiums that are $250 a month lower
The premium difference alone saves $3,000 a year. Add $9,000 in health savings account (HSA) contributions through payroll, and a family in the 22% federal bracket skips roughly $2,670 more in income and payroll taxes.
In a quiet year, the family comes out about $5,670 ahead. In a year with an ER visit and a few follow-up appointments, the family pays $3,500 more toward the deductible, and the premium savings cover most of the gap.
Co-insurance and out-of-pocket maximums vary by plan, and a family managing an ongoing condition may still be better served by the traditional option.
My favorite account
Anyone who’s spent five minutes with me knows I have a soft spot for HSAs. I’d argue they are the most attractive accounts available in personal finance because of their unique triple tax advantage.
Payroll contributions skip federal income tax plus Social Security and Medicare taxes. The balance grows untaxed, and withdrawals for qualified medical expenses come out untaxed, too.
For 2027, families can contribute up to $9,000, including any employer money, and savers 55 or older can add $1,000.
Most people spend an HSA as fast as they fund one, paying for checkups and stitches as the bills arrive. Once the balance covers a year’s deductible, many plans let you invest the rest, and the growth stays untaxed as long as the money eventually pays for medical care.
After 65, withdrawals for other purposes count as ordinary income, much like a traditional IRA, without the 20% additional tax younger account holders pay. HSA investments can lose value, so the money set aside for this year’s deductible belongs in cash.
The lines on your pay stub
Group legal coverage and supplemental policies tend to renew year after year without a second look. Each might still earn a spot, and open enrollment is the window to decide on purpose.
The flexible spending account deserves the hardest look. A general-purpose health flexible spending account (FSA) can’t be paired with an HSA, so a move to the high-deductible plan also ends the December scramble to spend whatever balance remains.
Open enrollment takes most people five minutes: 30 minutes with the packet and a clear look at your savings shapes the next 12 months of paychecks — and makes the next surprise trip for stitches a lot easier to absorb.
