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How to hack your employee health benefits

Make sure you take complete advantage of your

Make sure you take complete advantage of your employee benefits package, especially health insurance benefits, experts say. Credit: Getty Images/iStockphoto/zimmytws

Employee health benefits can have huge value, but you may 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 pre-tax money, typically through payroll deduction, for health care expenses. There's no requirement that the money be contributed before it's spent, however.

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  access the full amount, even if your first payroll deduction hadn'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.

Let your HSA grow, but keep your receipts. 

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

These 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, however, to avoid taxes and penalties on any withdrawal — as long as the HSA owners keep receipts for those previous out-of-pocket medical costs, says Mark Luscombe, principal analyst for tax consultant Wolters Kluwer.

Use COBRA to retire (a little) early. 

The Affordable Care Act was supposed to provide the bridge between employer-provided insurance and Medicare, when people turn 65. The ACA bars insurers from rejecting people for pre-existing conditions and limits premiums for older Americans. Congressional attempts to repeal or undermine the act, however, have left many people worried about 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.

If your employer has been paying part of your premiums, the cost for COBRA coverage may 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'll pay additional 2 percent fee to cover administration costs.

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

The IRS has made clear that there's no time limit on reimbursing yourself from a health savings account. HSAs can be used to pay medical expenses from earlier years, as long as the expense occurred after the HSA was established. The IRS says the HSA owner must keep records showing:

  • The qualified medical expenses.
  • Proof that the expenses weren't previously paid or reimbursed from another source, such as insurance or a flexible spending account, and
  • Proof that the expenses weren't taken as an itemized deduction.


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