Health care reform will impact companies offering medical reimbursement arrangements such as HSAs, HRAs or FSAs with the establishment of new restrictions on over-the-counter (OTC) medicines and drugs purchased after December 31, 2010.  Unless individuals have a written prescription from their physician, they may no longer be reimbursed for over the counter drugs.

FSAs and HRAs

Beginning January 1, 2011 employer-provided accident and health plans (such as health FSAs and HRAs) can only reimburse for prescribed medicines and drugs other than insulin.  OTC drugs purchased without a prescription before 2011 are still eligible for reimbursement at any time according to the terms of the plan and extent allowed under the law prior to reform.

HSAs and Archer MSAs

Beginning January 1, 2011, distributions from HSAs and Archer MSAs will only remain qualified and tax-free for prescribed medicines and drugs other than insulin.  Nonqualified medical expenses are includible in gross income and subject to a 20% excise tax.  However, the restrictions do not affect distributions made in 2011 or later for medicines or drugs purchased before 2011.

What does this mean to you?

In order to receive reimbursement for over the counter medication, individuals need to produce a copy of the written prescription from their physician.  Companies who provide reimbursement arrangements for their employees need to amend their corporate documents by June 30, 2011 to reflect this new change, so long as the amendment is effective retroactively for expenses incurred after December 31, 2010. Changes impacting the maximum amount an individual can contribute to an FSA do not take effect until 2012.  The IRS has a Q&A section on their website that you may find beneficial as well.