Friday, September 10, 2010

Further guidance issued on the use of FSA, HRA and HSA funds on over-the-counter drugs

On September 3, the IRS released further clarification on the health reform provision restricting the use of Flexible Spending Account (FSA), Health Reimbursement Account (HRA) and Health Savings Account (HSA) funds for over-the-counter (OTC) medications.

While some OTC items will maintain their current eligibility status, OTC drugs, medicines and biologicals will now require a prescription from a health care provider effective January 1, 2011. Additionally, participants will no longer be able to purchase these items with their debit card. These OTC items will have to be purchased using some other method and the participant will have to submit a Reimbursement Request Form with the receipt and prescription to be reimbursed.

The IRS uses the following example to illustrate proper substantiation: “A customer receipt issued by a pharmacy which identifies the name of the purchaser (or the name of the person for whom the prescription applies), the date and amount of the purchase and an Rx number satisfies the substantiation requirements for over-the-counter medicines or drugs, as does a receipt without an Rx number accompanied by a copy of the related prescription.”

Until further IRS guidance regarding the definition of medical expenses is released, it is likely that the following OTC products will no longer be eligible without a prescription:
• Acid Controllers
• Digestive Aids
• Allergy & Sinus
• Feminine Anti-Fungal/Anti-Itch
• Antibiotic Products
• Hemorrhoidal Preps
• Anti-Diarrheals
• Laxatives
• Anti-Gas
• Motion Sickness
• Anti-Itch & Insect Bite
• Pain Relief
• Anti-parasitic Treatments
• Respiratory Treatments
• Baby Rash Ointments/Creams
• Sleep Aids & Sedatives
• Cold Sore Remedies
• Stomach Remedies
• Cough, Cold & Flu

Special Temporary Statutory Change
In order to allow retailers some time to adjust their inventory systems, the IRS reports that it “will not challenge the use of Health FSA and HRA debit cards for expenses incurred through January 15, 2011. However, on and after January 16, 2011, over-the-counter medicine or drug purchases at all providers and merchants (whether or not they have an inventory information approval system (IIAS) must be substantiated before reimbursement may be made.” Participants should be prepared to obtain receipts and manually submit claims for reimbursement as some merchants may not be ready to allow for the January 15, 2011 statutory change for debit card purchases.

Additional Information for Clients of Flores & Associates
Flores is updating all plan communication materials with this change in mind to be ready for the enrollment of 2011 calendar year plans. Any groups with plans that renew before January 1, 2011 will need to insure that their participants are aware of the change in order to appropriately budget for their FSA. For groups that have already enrolled plans that extend past the January 1, 2011 date, Flores will be preparing an electronic notification to be e-mailed to all participants notifying them of this change before the end of the year.

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