New 2011 Rules for Eligible Flexible Spending Account Purchases Affect OTC Medications

ALLEGAN, Mich., Nov. 15, 2010 /PRNewswire/ -- Beginning Jan. 1, 2011, most over-the-counter (OTC) medicines will no longer be reimbursable through flexible spending accounts (FSAs) or health reimbursement or savings accounts (HRAs and HSAs) without a prescription or letter of medical necessity.  This change is part of the broader healthcare reform legislation signed into law this past spring.

For years, individuals and families have set aside pre-tax dollars to cover qualifying reimbursable expenses, such as insurance deductibles and office co-pays, hospital bills, prescriptions, dental work and other expenses incurred from visits to specialty medical providers.  A wide array of OTC medicines was also considered eligible.

The new rules for reimbursement most notably affect purchases of OTC medications that fall into the following categories(1): pain relievers, cough, cold and flu, allergy, acid controllers, anti-diarrheas and other gastrointestinal, smoking cessation products, feminine anti-fungal and anti-itch, respiratory treatments, topical medical ointments, cold sore remedies and sleep aids.

In addition, according to BASIC, one of the nation's largest third-party benefits administrators, the regulations do allow for the eligibility of some OTC categories such as diabetic supplies, bandages and durable medical equipment.  But the company noted that the IRS is unlikely to publish a complete list of qualifying expenses.

Companies and individuals with FSAs, HSAs or HRAs need to be aware of the pending changes, and plan ahead.  BASIC offers tips for addressing the change:

Purchase and Save Now

Purchases of OTC products will remain eligible for reimbursement through the end of this year.  If you have a FSA, you are probably familiar with the "use it, or lose it" rule – which means that if you don't use all the funds in your account by the date set by your employer,  you forfeit any remaining dollars.  

Therefore, if you anticipate you will have unused dollars in your account this year and were planning to purchase a supply of OTC medications you commonly use, make sure you do so on or before Dec. 31, 2010.  

Look at changing your contribution for 2011

There is currently no federally mandated limit on the amount of flex dollars you can set aside; it is your employer who sets that amount.  The average election is around $1,400 per person / family, but most employers allow much more.  Starting in 2013, the new law will cap the total amount an employee can contribute to $2,500.  With these two changes on the horizon, now is the time to evaluate your FSA to plan ahead for current and future healthcare purchases.  

Prescriptions and letters of medical necessity

OTC medicines will still be eligible for reimbursement if you obtain a prescription or letter of medical necessity from your healthcare provider.  Plan ahead during your next doctor's visit and ask for a prescription or complete a letter of medical necessity form from your company's third-party benefits administrator (see BASIC's sample form).

You should check with your benefits administrator, but generally, you will need to provide two pieces of information to make your claim: proof of purchase (such as a customer receipt showing amount paid and date of sale) and proof of prescription.  

Store brand savings

Finally, even without the benefits of using pre-tax dollars on qualifying OTC purchases, customers can still realize similar savings by purchasing the store brand versions of OTC medicines, which typically offer 20 to 40 percent savings over national brands. Store brand products contain the same FDA-approved active ingredients as national brand equivalents, and can be found at leading retailers across the nation.  Of course, purchasing store brand OTC's using tax-free reimbursement account dollars can provide the greatest potential savings for consumers.  

** IRI Info Scan Data, FDMx Average from US Major Retailers, 52 wks ending 9/26/10  

Additional information regarding the 2011 changes to FSA/HSA/HRA accounts is available at www.irs.gov or www.healthcare.gov.  

Perrigo Company is a leading global healthcare supplier that develops, manufactures and distributes OTC and generic prescription (Rx) pharmaceuticals, infant formulas, nutritional products, active pharmaceutical ingredients (API) and pharmaceutical and medical diagnostic products.  The Company is the world's largest store brand manufacturer of OTC pharmaceutical products and infant formulas. The Company's primary markets and locations of manufacturing and logistics operations are the United States, Israel, Mexico, the United Kingdom and Australia. Visit Perrigo on the Internet (http://www.perrigo.com).

() The IRS has not finalized the list of ineligible OTC items; for more information from the IRS: http://www.youtube.com/watch?v=wWN4XF5NuVg

SOURCE Perrigo Company