Open Enrollment Ahead: Which Health Insurance Plan Should You Pick?

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Health InsuranceFor many workers, it's almost time for the annual ritual of open enrollment, when you get to choose a health insurance plan and other benefits for the coming year. And while wading through all those documents and details may not sound like much fun, the right decision can save you enough money to make it worth the effort.

If you have multiple health insurance plans to choose from, your first consideration should be overall cost. The most comprehensive plans likely mean less money out of your pocket for co-pays and deductibles, but you'll pay higher premiums to get that coverage. By contrast, less inclusive coverage may force you to pay your doctor more for every visit, but you'll have less money taken out of each paycheck.

Obviously, it's impossible to know in advance exactly how much you'll need to pay in medical expenses. But based on your past medical history, you should be able to get a good idea of what you've typically spent in prior years. With that information, you can project what your costs will be under each plan and make an informed decision.

In general, if you don't tend to need much health care, then a less-expensive plan with higher co-pays and deductibles will usually save you money. The savings in premiums will typically outweigh the relatively small additional cost of out-of-pocket expenses throughout the year.

Conversely, if you have adverse health conditions that require frequent treatment, then higher-cost coverage may well be worth the price. Even small savings in co-pays and deductibles can add up if you visit your doctors often enough.

Stay Flexible

The other decision involves setting money aside in a Flexible Spending Account. For plan years starting in 2013, workers whose employers offer FSAs can set aside up to $2,500 per employee in pre-tax money for medical expenses. That's down from $5,000 this year due to limitations imposed by the Affordable Care Act, but it can still save you hundreds of dollars in tax liability.

The danger with FSAs is that whatever money you set aside in them must be spent on health care expenses by the end of the year (or shortly thereafter in plans with grace periods). Otherwise, you forfeit the savings. So in deciding how much to save, be conservative -- it's much better to save too little than too much and end up losing it.

It can be tough deciding on health insurance and other benefits. But with a whole year's worth of costs riding on the decision, it's smart to take some time and figure out the best answer for you.

For more on being smart with your money: Motley Fool contributor Dan Caplinger walks his spouse through the insurance documents every year. You can follow him on Twitter @DanCaplinger.

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