This week’s question comes from Eric, an HR manager. I know there are changes to flexible spending arrangements (FSAs) because of health care reform. How does health care reform affect reimbursements for over-the-counter medicines in FSAs? Answer: The Patient Protection and Affordable Care Act (PPACA) made changes to reimbursements for over-the-counter medicines in the following types of accounts:
- Flexible Spending Arrangements (FSAs),
- Health Reimbursement Arrangements (HRAs),
- Health Savings Accounts (HSAs), and
- Archer Medical Savings Accounts (Archer MSAs).
Over-the-Counter Medicines Generally Are No Longer Reimbursable
Generally, the cost of an over-the-counter medicine or drug cannot be reimbursed from the account unless a prescription is obtained. The change does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eyeglasses, contact lenses, co-pays and deductibles.
Change Is Effective for 2011
The new standard applies only to purchases made on or after Jan. 1, 2011, so claims for medicines or drugs purchased without a prescription in 2010 can still be reimbursed in 2011, if allowed by the employer’s plan.
IRS Provides Guidance on New Rules
The Internal Revenue Service (IRS) recently released Notice 2010-59 to provide guidance to employers and employees on the impact of PPACA and how it revises the definition of medical expenses as it relates to over-the-counter drugs.
Rev. Rul. 2003-102 Obsoleted
In conjunction with this change, the IRS also released Rev. Rul. 2010-23, which obsoletes Rev. Rul. 2003-102. This ruling provided guidance on employer reimbursements of amounts paid by an employee to purchase nonprescription medicines or drugs.
Employees Need to Plan for Changes When Making 2011 Elections
Vision Payroll recommends employees start to plan now to account for the impact of these changes on how they will make their elections under these types of plans.