Thursday, April 29, 2010

Health reform to restrict the use of FSA, HRA and HSA funds on over-the-counter drugs

Effective January 1, 2011, the Patient Protection and Affordable Care Act (PPACA) stipulates that over-the-counter (OTC) medicines will not be eligible for purchase with pre-tax dollars without a doctor’s prescription. This rule applies to the use of Flexible Spending Account (FSA), Health Reimbursement Account (HRA) and Health Savings Account (HSA) funds.

Even with a doctor’s prescription or Note of Medical Necessity (NMN), individuals will be required to pay at the point of service and submit a manual claim for reimbursement of FSA or HRA funds. Pre-tax FSA, HRA or HSA funds can still be used to purchase OTC items that are not considered a drug or a medicine (e.g. bandages, wound care, contact lens solution). Stores that distinguish eligible from ineligible items at the cash register are expected to adjust their systems to accommodate the new regulations.

These changes will go into effect on January 1, 2011 regardless of an employer’s plan renewal date. It is important that employees consider the new OTC rules when estimating the amount to put in their accounts for the next plan year.

Other changes to cafeteria plans include:
• The penalty for using HSA funds on non-qualified medical expenses is increased from 10% to 20% (effective January 1, 2011)
• FSA contributions for medical expenses is limited to $2,500 per year, indexed for inflation (effective January 1, 2013)

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