The Affordable Care Act of 2010, signed in March 2010, places new limits on over-the-counter drug reimbursements in Flexible Savings Accounts (FSA’s), Health Reimbursement Arrangements (HRA’s), and Health Savings Accounts (HSA’s).
Under the new rules, over-the-counter drugs cannot be reimbursed under these plans unless they are purchased with a doctor’s prescription. The act goes into effect for items purchased in 2011.
This includes (but is not limited to):
- Cough, flu, and cold medicine
- Allergy and sinus medicine
- Cold sore remedies
- Pain medication
- Stomach remedies (such as indigestion)
- Anti-itch creams
- Motion sickness.
Prior to the new rules, people with a FSA, HRA, or HSA could be reimbursed for over the counter medications. Usually all that was needed was a receipt stating what the item was as backup for reimbursement. This meant that items like over-the-counter allergy remedies could be used as part of a health plan and be used with pre-tax dollars, lowering the amount you are taxed.
How Does This Affect You?
If you have a FSA, HRA, or HSA then you need to take into account the fact that you can not be reimbursed for over-the-counter drugs. This may mean lowering the amount you contribute towards these accounts.
It also means that if your doctor suggests an over-the-counter medication, then you should ask for a prescription so you can include the medication in your reimbursement.
How Do You Prove a Prescription for an Over-the-Counter Drug?
In order to claim an over-the-counter drug you will need to have a copy of the receipt as well as the original or a copy of the prescription. Some pharmacy receipts may have a Rx number on them that would act as proof of a prescription.
There’s One Exception
The one exception to the prescription rule is for insulin. This can still be reimbursed on FSA, HRA, and HSA plans without a doctor’s prescription as backup.
What is Still Eligible for Reimbursement
Co-pays, deductibles, and health care expenses (like eye glasses, contact lenses, and medical devices), and prescription medicines.
Make sure you keep these new rules in mind when you determine your plan contribution amount for 2011. Plans like the Flexible Spending Account are “use it or lose it” accounts. This means if you don’t have enough deductions to meet your contributions then you lose the difference.
A flexible savings account is still a great way to reduce your taxable income. You just need to take into consideration the new over-the-counter medication rules.
Sources: Affordable Care Act: Questions and Answers on Over-the-Counter Medicines and Drugs; IRS Issues Guidance Explaining 2011 Changes to Flexible Spending Arrangements
Thanks for highlighting this important 2011 flexible spending account change! Many people use the over-the-counter drugs to close the estimation gap and avoid losing their funds. Given this new change we will definitely have to take a closer look at our estimations.
Absolutely. End of the year purchases are a popular to make sure you use up all of your funds but you can’t always look for prescriptions to get.
We just used a calculator on http://savemyflexplan.org/ to figure out the tax impact on us for our Flex plan based on the changes to FSAs. Since we are in the 28% tax bracket and put $3000 in our FSA last year, we would see an increase in our taxes of $1070. Ouch. I’m not liking that much.
Ouch! I really liked that my decongestants were deductible. It’s not always easy to plan for prescription drugs but I have a better idea of how often I use over the counter medication. I guess we’ll see if congress changes anything.
One of many new “stealth” tax increases. More to follow.
Ughh.