Three methods can hack your employee health care benefits

Employee health benefits can have huge value, but you might not be taking full advantage of yours.

Here are three hacks that can help you get more out of what your company offers.

Drain your FSA early

Medical flexible spending accounts allow employees to put aside pretax money, typically through payroll deduction, for health care expenses. But there is no requirement that the money be contributed before it’s spent.

Let’s say you signed up to contribute the maximum $2,650 to your medical FSA for 2018. You then incurred $2,650 of eligible expenses the first week of January. You can be reimbursed for the full amount, even if your first payroll deduction hasn’t been made, says Sander Domaszewicz, principal at consulting firm Mercer.

Oh, and if you leave your job before making all — or any — of the contributions? The FSA plan absorbs that cost. You don’t have to pay the difference.

Claiming your FSA funds early also ensures that you spend the money before the plan’s “use it or lose it” deadline, typically Dec. 31. Some plans allow $500 to be rolled over into the next year’s account. Some offer a two-and-a-half-month grace period, so the usual deadline would be extended to March 15.

The rules are different for dependent-care FSAs, which have a $5,000 limit this year. That money can’t be spent before it’s contributed, Domaszewicz says.

Let it grow, but keep receipts

Health savings accounts pair with high-deductible health insurance plans and were designed to help people pay those deductibles. But HSAs offer a rare triple tax break: Contributions avoid federal income taxes, grow on a tax-deferred basis and are tax-free when spent on qualified medical expenses.

The tax advantages are so significant that many people treat their HSAs as supplemental retirement funds. Instead of dipping into the accounts, they pay medical expenses out of pocket and leave their HSAs to grow.

Technically, people are supposed to pay taxes and penalties on HSA withdrawals if the money isn’t used for medical costs and they’re under 65. The penalty is waived for those 65 and older, but the income tax remains.

It’s possible to avoid taxes and penalties on any withdrawal if the HSA owners keep receipts for those previous out-of-pocket medical costs, says Mark Luscombe, principal analyst for tax consultant Wolters Kluwer.

The IRS has made clear that there is no time limit on reimbursing yourself. HSAs can be used to pay medical expenses from earlier years if the expense occurred after the HSA was established. The IRS says the HSA owner must keep records showing:

■ The qualified medical expenses.

■ Proof the expenses weren’t previously paid or reimbursed from another source, such as insurance or a flexible spending account.

■ Proof the expenses weren’t taken as an itemized deduction.

So in addition to receipts, HSA owners should hang on to insurance records and tax returns for the years in which they incur qualifying medical expenses.

Use COBRA to retire (a little) early

Saving enough to afford an early retirement is tough, but even the best savers face another huge hurdle: securing health care insurance until they turn 65.

The Affordable Care Act was supposed to provide the bridge between employer-provided insurance and Medicare. The ACA bars insurers from rejecting people for pre-existing conditions and limits premiums for older Americans. But congressional attempts to repeal or undermine the act have left many people uncertain about the wisdom of walking away from employer-provided health care.

Those who are at least 63½ have another option: COBRA, the federal law that requires group health plans to continue coverage for up to 18 months for many workers.

COBRA laws generally apply to group health plans offered by private-sector employers with 20 or more employees and by state and local governments. Many states have similar laws, some of which apply to employers with fewer than 20 employees.

If your employer has been paying part of your premiums, the cost for COBRA coverage might come as a shock. Employers subsidize an average 82 percent of the tab for individual insurance and 69 percent for family coverage, according to a 2017 Kaiser Family Foundation survey. Plus you will pay additional 2 percent fee to cover administration costs.

That’s a big tab, but if you can pay it, your coverage won’t be jeopardized by political jockeying.