IRS Issues New guidance on OTC Medicines and Drugs

Last week, the IRS issued additional guidance related to the new health care reform law and its impact on over-the-counter (OTC) medicines and drugs.

Summary of the new OTC law: The Patient Protection and Affordable Care Act (PPACA), mandates that expenses incurred for OTC medicines and drugs (with the exception of insulin) will not be eligible for reimbursement under a health FSA or HRA unless you have a prescription.

The new OTC law will apply to all purchases made on or after January 1, 2011. The new law will apply to the tax year, not the plan year. This means that even if your plan year starts in November 2010, the rule will still apply to you (and everyone else) beginning January 1 2011. 

Effective January 1, you will no longer be able to use your FSA/HRA debit card to pay for over-the-counter medicines and drugs, and you will need to obtain a prescription in order to receive reimbursement from your HSA/HRA for these items. That means that you will have to pay for these items out-of-pocket, and then file a manual claim along with a prescription in order to be reimbursed from your FSA or HRA.

What is considered an OTC “medicine or drug”? 

The IRS did not provide specific guidance regarding what is to be considered a medicine or drug under this new law. Nevertheless, at this time we can be reasonably certain that certain categories of items will be considered medicines/drugs and therefore will require a prescription effective January 1, 2011 in order to receive reimbursement from an FSA or HRA. These include: allergy and sinus medications; cough, cold and flu medications; digestive aids; pain relievers; sleep aids; and stomach remedies. Please contact your FSA/HRA administrator for a more detailed list. 

The good news is, you will still be able to use your FSA/HRA debit card for many common health care expenses that are not considered OTC medicines and drugs under the new law. These include: Band Aids; diabetic testing and aids; eye care and contact lens supplies; first aid supplies; insulin and diabetic supplies; reading glasses; and thermometers. And remember, regular prescriptions will not be subject to this rule, so you will still be able to pay for your prescription drugs with your FSA/HRA debit card just as you have in the past. You will also be able to use your FSA/HRA debit card for doctor and hospital visits, as well as dental and vision care, provided such items are covered under your plan(s).

Updated HSA Regulations

Effective April 17, 2008, the Dept of Treasury issued final regulations providing guidance on employer comparable contributions to HSA’s under section 490G in instances where an employee has not established an HSA by 12/31 and in instances where an employer accelerates contributions for an employee who gets sick and needs access to employer HSA funds.


Updated HSA Regulations

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