Hi everyone, Dan Cassidy here. Welcome back to Top of the Morning on the UBS Market Moves podcast channel. Open enrollment season is right around the corner, and for many employees, that means making decisions about health care, insurance, retirement savings, and other workplace benefits.
Joining me for the conversation today, glad to welcome back to Top of the Morning, Ainsley Carbone, Retirement Strategist, and Justin Waring, Head of UBS Wealthway Strategy and Solutions, both from the UBS Chief Investment Office, Global Investment Management Team within UBS FSI. With that, Justin, Ainsley, it's great to have you both here with us on Top of the Morning. Thank you for joining us.
A lot we want to get into, so let's jump right into it. Justin, let's begin with the big picture. Why shouldn't employees just click renew or move on during open enrollment?
Thanks for hosting us, Dan. It's a pleasure to join you for this discussion. Many families do just click renew and move forward with their existing elections from last year, and honestly, I understand why.
Open enrollment can be confusing. You have to remember what all the different benefits do, understand whether anything changed, and also figure out what applies to your specific situation, which might have actually evolved over the last year as well. Most of us don't spend our days thinking about deductibles, coinsurance, health savings accounts, disability insurance, beneficiary elections, and all the other stuff that we need to understand in order to make these decisions.
In fact, these decisions, because we make them about once a year, by the time open enrollment comes around again, it kind of feels like we're starting from scratch a little bit with understanding all these terms. So it's very understandable the tendency to just choose the path of least resistance and select what you chose last year, but the challenge is that life doesn't stay the same from year to year, and in fact, the plan may have changed as well from the previous year. So if you got married, had a child, maybe your health needs have changed, or even if your income changed, or if your spouse changed jobs, all of these factors, as well as if your employer actually introduced new benefits or modified existing options, mean that it is really worth taking a look at your situation from a fresh perspective.
So last year's elections may no longer be the best fit if any of those things happened, and so we really think it's important that you take this open enrollment period as an opportunity to make sure that your benefits still align with your needs and your priorities, that to be clear, the goal isn't to make a change every year. In many cases, you will review your options and decide that your current election still makes sense. But there's a big difference between making that decision intentionally and simply letting inertia take the wheel.
So that's the heart of the message. Don't just click renew, take a fresh look first. So Ainsley, Justin makes a great point that life tends to evolve on an annual basis.
So with that in mind, Ainsley, what kinds of life changes should prompt someone to take a closer look at their benefits elections? Well, I think most people immediately think about major life events, and those definitely matter. So marriage, divorce, having a child, adopting a child, or just having a child become financially dependent on you or independent can all change the types of benefits that are best going to support your family.
But from a financial planning perspective, I actually think some of the less obvious changes can be just as important. For example, maybe your spouse changed jobs and now has access to a different set of benefits. So maybe that means you want to sit down and compare both your benefits at your workplace, compare new benefits and see which ones make the most sense for you.
Maybe your household income increased significantly, and you need to potentially adjust the life insurance that you get through work or purchase maybe additional supplemental life insurance to protect that higher household income. Maybe your expenses have changed, or maybe retirement suddenly feels a whole lot closer than it did a few years ago, and you need to think about what you need to do today in order to set yourself up for that retirement. Health changes, I think, are another big consideration.
If you expect your health care usage to be different next year than what it was this year, that alone may justify just taking a fresh look at all your options. But one framework I like to ask is just four simple questions. What's changed in my life?
What's changed in my finances? What's changed in my health? And what has changed in my goals?
Those questions often help to highlight areas that deserve additional attention. But obviously, I mean, just like we've been saying, everyone should review their benefits each year regardless. Sometimes you'll discover that a change may make sense.
Other times you'll confirm that your current elections are still the right fit. Either way, by going through the process of reviewing your benefits, you've made a deliberate decision of saying, okay, yes, this is the right fit, rather than just letting inertia make that decision for you. Justin, from hearing that list, Ainsley shared with us quite a range of considerations, the single one out.
Health insurance, in particular, often the biggest decision employees face during open enrollment. So Justin, what is the biggest mistake people make when comparing health plans? I would say probably the biggest mistake is focusing only on the premium.
That's the most visible part of health insurance because it comes right out of your paycheck. We don't always know how much we're going to spend, so it's not that easy to forecast what our deductibles, co-pays, co-insurance, and our out-of-pocket expenses as a whole will look like. Premiums are only one piece of the equation, but they're the most obvious one.
They're the one you pay regardless of whether you use health insurance or not. But to make an informed decision between the different options, you should think about how all those pieces fit together. Some people assume, it seems a little bit intuitive, that the lowest premium plan is automatically the least expensive option, but that's not always true.
Depending on how much health care your family uses, a plan with a higher premium may actually result in lower overall costs over the course of the year because it begins sharing expenses sooner and may have also maybe possibly a lower out-of-pocket maximum. In order to really compare plans and evaluate things, I think it is important to ask yourself, first, what do my total costs look like in a normal year? Maybe you looked at a previous year and you run the numbers for those expenses through the plans that you have available to you so that you can evaluate how much your out-of-pocket expenses would be if that year was repeated.
Secondly, what would my costs look like during a year where health care needs are higher than expected or higher than previous years? It's valuable to take a look at how much you would totally contribute to the health care costs in that scenario under the different plans. You don't need to predict the future perfectly, but thinking through those scenarios can help you compare the plans more effectively than simply looking at the monthly premium and can make you feel a bit more confident about where the break-even is.
When you run these numbers, it can ultimately come out to a break-even number that says, if I spend more than $3,500, I'm better off with this plan. If I spend less, then I'm better off with that plan. From a cost perspective, I think that that's the best way to think through things, but costs are not the only factor.
Access to your network matters. Prescription coverage matters. If you need coverage from specific doctors and specialists, that can matter as well.
And so at the end of the day, the best plan is not necessarily the cheapest plan. It's the plan that provides the best overall fit for your family's needs. So that could be a mix of cost and access considerations.
Okay. So from hearing that the health insurance component of workplace benefits clearly requires a lot of care and consideration, though Ainsley, beyond health insurance, what workplace benefit do employees tend to overlook? I think employees often spend most of their time on health insurance decision and very little time on everything else, and that does make sense because, one, it affects your paycheck directly, just like Justin was saying, but also open enrollment is usually the only time that you're able to make a change or an adjustment or a decision about your health insurance, with the exception, of course, of a few major life events, but that's really the only time you can make changes.
I'd say another area you want to focus on is the retirement plan. That's a big one, especially if there's an employer match. Those matching contributions can be a valuable part of total compensation, but people don't always revisit their contribution elections each year.
Retirement plans are one of those where you, in most cases, some employers might have it set up differently, but usually you are able to make changes to your retirement plan throughout the year, but even if that's the case for you, open enrollment is a time where we sit down and take a look at our benefits and make decisions, so that might be a good time for you to revisit your contribution elections. Life and disability insurance are also overlooked quite often. Many employees elect coverage when they were first hired, but their family situation and the income and their financial responsibilities may look very different today than what it did, than what they looked like when they first enrolled.
I'd also include health savings accounts. People often think of them as simply a way to pay for current health care expenses, which it absolutely can't help you pay for current health care expenses, but depending on someone's situation, they can also play an important role in broader financial planning and saving for future health care expenses, since they don't have a use it or lose it rule the way that flexible spending accounts do, and then finally, beneficiary designations. They're very easy to forget, but open enrollment is a great reminder to, again, sit down, review all of your benefits, and to make sure that those beneficiary elections are still aligned with your wishes.
The key takeaway is that open enrollment is not just about choosing a health plan. That is a big one, but it's also an opportunity to step back and make sure you're taking full advantage of all of the benefits that are available to you. At this point, a lot to take away from today's episode, and for you, our listeners, the conversation should definitely continue with your financial professional to determine what elections make the best sense for you, given your individual circumstances, though, Justin Ainsley, let's finish with a practical takeaway for today.
If listeners only do one thing before their enrollment deadline, what should it be? Well, I would say the most important thing is to set aside 20 minutes and review your elections before you renew them. That's the most important thing.
If you do that one thing, you're already ahead of where a lot of other families are. But I'll sneak in a second thing. If you do have a health savings account, look at it and make sure that it's invested, because about 85% of health savings accounts are not invested, they're sitting in cash, and that account has the ability to grow tax-free and allows for tax-free distributions for healthcare expenses later in your life.
That is one of the best tax-advantaged accounts that exists for your investments. Make sure that you're getting growth opportunities from that if you are planning to keep those dollars growing for healthcare expenses in retirement. And Dan, I think you said it.
It certainly makes sense to sit down with a financial professional to kind of help walk you through this. But another thing I'd mention is just that if you review everything and decide to keep the exact same elections, that is completely fine. The objective here is not to look through your elections and find something to change.
The objective is to look at everything to make sure that you're confident in the decisions that you're making and that you're confident that there's still the right ones for you and your family, again, rather than just letting inertia make that decision for you. Ainsley, Justin, this was a very productive, informative conversation today. It comes at a great time as many of us are preparing to review our workplace benefits throughout the course of October and November.
So thank you both for dropping by Top of the Morning today to have this dialogue and conversation with their listeners and clients. Thank you for having us. Great to be here.
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