Contibuted by Jo-Anne Mineweaser
On September 3, 2010, the Internal Revenue Service issued Notice 2010-59 to provide guidance on the revised definition of “medical expenses” under the Patient Protection and Affordable Care Act. Beginning on January 1, 2011, expenses incurred for medicines or drugs may be paid or reimbursed by an employer-provided plan, including a health Flexible Spending Arrangement (FSA) or Health Reimbursement Arrangement (HRA), only if:
· The medicine or drug requires a prescription;
· The medicine or drug is available without a prescription, but the individual gets a prescription for it; or
· The medicine or drug is insulin.
Expenses for over-the-counter medicines or drugs incurred on or after January 1, 2011 will no longer be eligible for reimbursement without a prescription. Expenses incurred for over-the-counter medicines or drugs purchased without a prescription before January 1, 2011 may be reimbursed tax-free at any time (even after January 1, 2011) in accordance with the terms of the plan. For example, if an FSA allows individuals to submit claims for 2010 until March 31, 2011, an expense for over-the-counter medicine purchased on December 14, 2010 would be reimbursable, even if the reimbursement is made on February 20, 2011. Similar rules apply for reimbursement under a Health Savings Account (HSA) or Archer Medical Savings Account (MSA). As long as the medicine or drug meets one of the points listed above, it will be considered a qualified medical expense.
These rules apply only to medicines and drugs; they do not apply to other medical care items such as equipment, supplies or diagnostic devices. So, FSAs, HRAs, HSAs, and Archer MSAs may still reimburse individuals for things like crutches, bandages, and blood sugar test kits without the individual obtaining a prescription.
For FSAs or HRAs that use debit cards, the current systems are not capable of substantiating compliance with the new rules because they cannot recognize whether the medicine or drug was prescribed. Therefore, the Notice provides that health FSA and HRA debit cards may not be used to purchase over-the-counter medicines or drugs on or after January 1, 2011. The IRS is allowing a limited transition period for using a debit card for expenses incurred through January 15, 2011 provided that the existing rules for debit card usage and substantiation are met. Debit cards may continue to be used for medical expenses other than over-the-counter medicines or drugs.
Plan documents may need to be amended to conform to these new rules. Generally, amendments to cafeteria plans must be prospective only. However, the IRS will allow a retroactive amendment to a cafeteria plan to comply with these rules provided the amendment is adopted no later than June 30, 2011.
If you have any questions regarding this information or need an amendment to your current plan, please contact Jon Grossman at 412.594.5574 or Jo-Anne Mineweaser at 412.594.3920, or firstname.lastname@example.org or email@example.com.