REIMBURSEMENT UNDER HEALTH CARE REFORM LAW
rules for reimbursement on over-the- counter (O-T-C) medicine
and drug costs under certain employer-provided benefit plans are
about to be changed due to the health care reform law enacted
earlier this year. Recent IRS guidance explains how the law
impacts reimbursements from flexible spending accounts (FSAs),
health reimbursement arrangements (HRAs), health savings
accounts (HSAs) and Archer Medical Savings Accounts (Archer
Before health care reform, amounts paid for prescriptions and
O-T-C medicines had been treated as medical care expenses for
FSA, HRA, HSA, and MSA purposes. Thus, a plan could reimburse
these expenses and the amounts would be excludable from the
account owner’s gross income.
health care reform law modifies the definition of medical
expenses for purposes of employer-provided health coverage.
Specifically, the cost of O-T-C medicines may not be reimbursed
with excludable income through an FSA, HRA, HSA or Archer MSA
unless the medicine is prescribed by a physician, or is insulin.
IRS’s new guidance explains that an individual may be reimbursed
for O-T-C medicines or drugs, only if the individual obtains a
prescription for the medicine or drugs. Under the guidance, a
“prescription” must meet the legal requirements for a
prescription under state law and be issued by an individual who
is legally authorized to write prescriptions in that state.
new prescription-only rule does not apply to items that are not
considered medicine or drugs, such as bandages, crutches, and
diagnostic devices, like blood sugar test kits.
changes to the rule relating to reimbursement and the
corresponding tax treatment of O-T-C medicines and drugs
obtained without a prescription are effective for tax years
beginning after December 31, 2010. Note that purchases made in
2010 are unaffected by the new rule, even if they are reimbursed
after December 31, 2010.
prove that the purchase of an O-T-C medicine or drug occurred
with a prescription and, therefore, qualifies for reimbursement,
an individual must provide documentation. Sufficient proof
includes the prescription (or a copy of it) and the customer
receipt (or similar documentation) showing the name of the
person obtaining the medicine or drugs, date of the sale, the
prescription number and the amount of the charge.
Other rules apply. Contact us for more details.