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New requirements under The Patient Protection and Affordable Care Act state that over-the-counter drugs purchased after Dec. 31, 2010, now require a prescription in order to be eligible for reimbursement from a health flexible spending account (FSA), health reimbursement account (HRA), health savings account, or Archer medical savings account.
Credit union employers need to communicate these changes to employees.
According to new Internal Revenue Service (IRS) guidance issued Sept. 3, 2010, a medicine or drug is only eligible for tax-free payment or reimbursement by an employer-provided plan (including a health FSA or HRA) 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.
These changes are effective for expenses incurred after Dec. 31, 2010, regardless of whether the credit union’s plan is fiscal or calendar year or whether there’s no plan year (or other coverage period in the case of an HRA), and regardless of any applicable grace period for a health FSA.
The IRS notice makes clear that employees do not need a prescription for over-the-counter items that aren’t medicines or drugs. This includes items such as crutches, bandages, and diagnostic devices (e.g., blood sugar test kits).
These items can qualify for medical care if they otherwise meet the tax code’s definition of medical care, which includes “expenses for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body.”
However, expenses for items that are merely beneficial to the general health of an individual, such as a vacation expenditure, don’t qualify as expenses for medical care.
Rules for debit cards
Another change credit union employees should keep in mind is that in most cases FSA and HRA debit cards cannot be used to purchase over-the-counter drugs, effective Jan. 1, 2011.
Current debit card systems aren’t capable of recognizing and substantiating that such drugs were prescribed.
These medicine or drug purchases must be substantiated before reimbursement may be made. Employees are required to submit the prescription and receipt, or a receipt issued by a pharmacy which identifies the name of the purchaser (or the name of the person for whom the prescription applies), the date and amount of the purchase, and a prescription Rx number.
Debit cards may continue to be used for medical expenses other than over-the-counter medicines or drugs.
For more information
For more information, consult a legislative brief containing detailed information regarding these changes and answers to many questions related to healthcare reform.
Please contact me if you have questions or need assistance communicating the new requirements to credit union employees.