Weiss Zarett Brofman | Sonnenklar & Levy, P.C. | Attorneys At Law

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FSA’s, HSA’s and Over-the-Counter Reimbursement: New Rules and New Requirements

On Behalf of | Mar 1, 2014 | Healthcare Law

As part of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, patients can now seek reimbursement for the cost of certain over‐ the‐counter (OTC) medicines and drugs. The rule affects reimbursements under employer‐ sponsored health plans, health flexible spending arrangements (health FSAs), and health reimbursement arrangements (HRAs), as well as health savings accounts (HSAs) and Archer medical savings accounts (Archer MSAs).

Presently, the cost of OTC medicines and drugs are deemed “medical expenses” that are eligible for reimbursement from group health plans (and are “qualified medical expenses” eligible for distribution from HSAs and Archer MSAs). However, these new changes amend the definition of what is considered a “medical expense” and restrict the reimbursement of funds used to purchase OTC medicine and drugs going forward after December 31, 2010.

As of January 1, 2011, reimbursement for medicines and drugs as permissible medical expenses can only be obtained if the medicine or drug requires a prescription; is available without a prescription (i.e., an OTC medicine or drug) and the individual obtains a prescription; or is insulin.

As patients seek to utilize these reimbursement vehicles, physicians are increasingly being asked to provide the documentation required to do so. While the patient simply needs to obtain a receipt of payment, according to the IRS, the documentation that a physician would be required to provide (other than for insulin) is nothing short of an actual prescription (regardless of the fact that the medications might be available over the counter and medically, do not require a prescription). Under these new changes, “a distribution from an FSA, HRA, HSA or an Archer MSA for a medicine or drug is a tax‐free qualified medical expense only if (1) the medicine or drug requires a prescription, (2) is an over‐the‐counter medicine or drug and the individual obtains a prescription, or (3) is insulin. (Affordable Care Act § 106(f), § 223(d)(2)(A) and new § 220(d)(2)(A)).

Moreover, in responding to recent requests for clarification from the physician community, the IRS has posted a specific response to this very “FAQ” on its website:

If your employer’s health FSA or HRA reimburses these expenses, you would provide the prescription (or a copy of the prescription or another item showing that a prescription for the item has been issued) and the customer receipt (or similar third‐party documentation showing the date of the sale and the amount of the charge). For example, documentation could consist of a customer receipt issued by a pharmacy that reflects the date of sale and the amount of the charge, along with a copy of the prescription; or it could consist of a customer receipt that 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 an Rx number.

For purposes of the new rule, a prescription means “a written or electronic order for a medicine or drug that meets the legal requirements of a prescription in the state in which the medical expense is incurred and that is issued by an individual who is legally authorized to issue a prescription in that state.”

It should be noted that the new rule is inapplicable to items that are not medicines or drugs, including equipment (e.g., crutches), supplies (e.g., bandages), and diagnostic devices (e.g., blood sugar test kits). These items will continue to qualify if they otherwise meet the 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.

In light of these new requirements, patients are certain to be increasingly seeking reimb