How FSAs, HRAs & HSAs are impacted starting 1/1/2011

The Patient Protection and Affordable Care Act (PPACA) of 2010 will change the rules for purchasing over-the-counter (OTC) medicines or drugs using Flexible Spending Accounts (FSA), Health Reimbursement Accounts (HRA) or Health Savings Accounts (HSA).

The popularity of accounts like FSAs is driven by tax-saving benefits for both employees and employers. A typical employee can expect to save $420 annually* while the financial benefit for employers is avoiding the 7.65% FICA tax on employee wages diverted to an FSA. While the motivating tax benefits will remain intact under the new reform law, careful communication on how OTC medicines or drugs qualify for reimbursement will be key to continuing to benefit from tax advantages.

What will qualify as a tax-free & reimbursable FSA, HRA or HSA expense?
Starting January 1, 2011 expenses for medicines or drugs will qualify as tax-free and reimbursable by an employer-provided health plan, including an FSA, HRA or HSA, only if:
• the medicine or drug requires a prescription
• is an over-the-counter medicine or drug and the individual obtains a prescription; or
• is insulin

Therefore, for OTC medicines and drugs to be reimbursable an individual must obtain a prescription.

How will FSA, HRA and HSA debit cards be impacted?
These debit cards may not be used to purchase OTC medicines or drugs.

Since OTC medicines and drugs must be substantiated before a reimbursement can be made, individuals must pay out-of-pocket at the time of purchase and then submit a reimbursement claim along with a copy of the prescription.

Note: Debit cards may continue to be used for OTC items that are not considered a medicine or drug (ie. bandages, contact lens solution)