With Mayo Clinic open enrollment just around the corner, now is a good time to review your elections so you can maximize your benefits. Increased savings + reduced tax = A happy 2021.
Summary of plan changes
The only changes to the plan for 2021 are:
- Premiums will increase for Premier and Select plans by about 7-10% (Basic plan premiums remain unchanged again in 2021)
- Health Care FSA contribution limit increased from $2,700 to $2,750
- HSA contribution limit increased from $3,550 to $3,600 for individuals and from $7,100 to $7,200 for family coverage
Everything else remains the same as your 2020 benefits. The primary questions to ask yourself now are:
- How has my situation changed over the past year?
- Did my benefits work well for me in 2020?
Examples of changes that may warrant updating your elections are:
- A change to your FTE
- Plans to have a child in 2021
- A new medical condition
- Lower than expected healthcare costs in 2020
- New prescription drugs
- Changes to childcare
- Changes to marital status
Let’s make thinking about the 3 plans as simple as possible before diving into details.
|Plan||Best when expected medical expenses are:|
If you fall into a clear cut category of very little or very high expenses, the right plan for you may be pretty clear.
The reality is that most people wind up in a grey area. The right plan will depend on your FTE, family members covered, and what types of medical expenses you will actually incur in 2021. It also depends on how costs are allocated between you and family members. This can make picking the right plan for your family tricky.
No matter how you choose to do it, you need to run the numbers to verify you are in the right medical plan for your situation. If you could use some help deciding which plan is right for you, you can schedule a complimentary benefits review meeting.
A common Mayo medical plan mistake
A quote from the Mayo Benefits University – Open Enrollment for 2021 Benefits Webinar sums this up more elegantly than I could:
“The reality is that we at Mayo Clinic tend to be in our population risk averse. We do not like risk. It keeps us up at night. I don’t want you to do anything that would keep you up at night. And because we as a population tend to be more risk averse, people tend to choose at a, what I would think is higher than normal amount, Mayo Premier because it lessens their out-of-pocket risk. When in reality, maybe one of the other plan options would be a better fit for you based on your utilization pattern.”
In short, Mayo employees have a tendency to be risk averse. As a result, many enroll in the Premier plan, when a better option may be available to them.
I am not saying that any one plan is better than another. You should be aware though that Premier is not automatically the “best coverage” (A name like Premier sure makes it sound like the best, doesn’t it?). You need to take your situation into consideration to when choosing the best plan for you.
If you find yourself in the Mayo Premier plan for no reason other than to avoid the risk of a big unexpected expense – consider other ways to help you prepare for this such as preparing an emergency fund. Taking advantage of a Health Savings Account can also help you prepare for future medical expenses if you are in the Basic plan.
Attention if you are a part-time employee on a family plan
Note this only applies to those with a .5-74 FTE and on a family plan for 2021. For this case, we have an anomaly due to large increases to premiums for part-time employees on Premier and Select plans. This may make which plan to choose for you easier next year.
If we run the numbers on a possible total annual maximum out of pocket costs for this scenario:
Premier: $1000 deductible + $4000 OOP Max + $6300 premiums = $11,300
Select: $2000 deductible + $6000 OOP Max + $3,540 premiums = $11,540
Basic: $4000 deductible + $6,000 OOP Max + $840 premiums = $10,840
The cost in a best case scenario (no medical expenses):
So a best case scenario Basic saves $5,460, and even a worse case scenario Basic still saves $460 over Premier. On top of all this, Basic has the added benefit of access to the triple-tax advantaged HSA.
(Note for all the other scenarios, Premier has a lower total annual max cost than Basic which makes sense. This anomaly only holds true for part time + family plan.)
Pre-tax savings accounts
This is often one overlooked way that you can save significant money for the year. Depending on your healthcare plan, you have access to one of two types of accounts to further reduce your medical costs burden:
Health Care Flex Savings Account (FSA)
- Only available for Premier and Select plans.
- Maximum contribution $2,750/employee per year.
- Rollover up to $500 at end of year.
If you are on Mayo Premier or Select, this is a good account to take advantage of if you know you for sure will have out of pocket healthcare expenses next year. The reason is that you do not pay taxes on money that goes into these accounts and is used for a qualifying expense.
For example, if you are in the 32% tax bracket, and know you will have at least $2,750 in out of pocket medical expenses next year, you will save $880 in taxes by utilizing this account instead of paying the expenses directly from your bank account.
Elect to contribute the amount you know you will have in expenses in 2021. Do not contribute more than that due to the “use it or lose it” provision of an FSA account. Any amount above $500 left in the account at the end of the year is forfeited, so plan ahead.
Health Savings Account (HSA)
- Only available for Mayo Basic healthcare plan.
- Maximum contribution $3,600 for individual or $7,200 family.
- Entire balance rolls over each year.
- Triple tax advantaged
- Contributions are pre-tax
- Investment grows tax deferred
- Qualified distributions are tax free
This is an extremely tax advantaged account to take advantage of if you have the Mayo Basic medical plan. Consider contributing the maximum amount allowed if you can.
The Basic plan carries a higher deductible and more potential out of pocket expenses in exchange for lower premiums. This account will help you cover out of pocket expenses if they occur. If you remain healthy next year and don’t use the money in your HSA, your contribution can be invested and saved for the future.
One of the biggest concerns I see from people is paying for healthcare costs in the future. This account can help you save for that in a very tax-efficient way. Even if you don’t use the money in the near future for healthcare – you can use the money for any purpose after age 65 and benefit from the triple tax advantage.
Dependent Care Flex Savings Account (FSA)
- Contribute up to $5,000/year per household
- Eligible to use for:
- Dependent care for children under 13
- Disabled relative that is dependent for at least half of their financial support
I frequently hear complaints about how expensive daycare is, but too infrequently hear of people taking advantage of a Dependent Care FSA. This is a separate account from your healthcare FSA, and is specifically to be used for eligible dependent care services such as daycare, after school programs, preschool, or summer day camp.
Only contribute to this account amounts you know will spend in 2021 due to the fact this account is completely “use it or lose it” for the year. The good news is expenses like daycare tend to be pretty predictable.
Savings can be substantial – a family with $5,000 in daycare expenses and in the 32% tax bracket can save $1,600 for the year simply by paying for their daycare through their dependent care FSA account.
The primary deciding factor in which plan makes sense for you is based on how much you utilize vision and dental care.
Mayo Reimbursement Account (MRA)
The Mayo Reimbursement Account is a good option if your expenses tend to be low. The MRA provides you a $1,150 benefit to spend as you choose on dental and vision services. You are not subject to using a network and can spend this money at any provider you choose.
A maximum balance of $5,000 can be rolled over to the next year. Keep in mind if you switch from MRA to another vision/dental plan, your MRA balance will be forfeited at the end of the year. If you have a large balance in your MRA account, you may want to wait until a year where your balance is spent before switching plans.
Note that a few years ago to be eligible for the Mayo Reimbursement Account, you needed to be on the Premier or Select healthcare plan. That is no longer the case. If you are on the Basic healthcare plan and would like to take advantage of the MRA, you can. Or if you were on the Select or Premier plans primarily to have access to the MRA, you are able to switch to the Basic healthcare plan and still take advantage of the MRA in 2021.
Delta Dental / Vision Care Plan
If you or your family are high utilizers of either dental or vision services, you may want to consider electing for a dental and/or vision plan. Premiums are higher when compared to MRA, but your benefit is also increased. This can result in lower overall costs for you if you have larger dental and/or vision care expenses. Refer to the Mayo plan descriptions and legal notices for an up to date list of covered expenses.
If you expect to have legal expenses, or having this coverage would simply give you piece of mind, it is a good insurance to have. The cost is reasonable at $17.74/month and covers legal expenses that you may incur during the year.
One group that should consider adding legal insurance is those that do not have any estate plan in place. This is something everyone needs (yes, young people too). Legal insurance will cover the costs for a professional to create your estate plan (you still pay court filing fees, which typically come in under $100).
Of course, refer to the plan document for a comprehensive description of what is and is not covered under the plan before making a decision to enroll.
Benefits that are reviewed during open enrollment are only those that require an election on your part. You have other benefits that are included with your employment and now is a good time to ensure those are working for you as well. If you’re not sure where to start, check out my guide to organize finances for Mayo employees.
Some of your additional benefits:
- 403b (check out my guide on how to invest your Fidelity 403(b) like a pro)
- Life insurance
- Disability insurance
- Employee assistance
Still have questions about your particular situation? I reserve a few spots on my calendar each week specifically to help our Mayo Clinic employees.