IRS Issues Guidance on FSA and HRA Debit Cards for OTC Drug Purchases

The IRS has released additional guidance on the use of health flexible spending arrangements (FSA) and health reimbursement arrangement (HRA) debit cards for buying over-the-counter (OTC) medicines and drugs in light of new restrictions imposed by the Affordable Care Act. The Act revised the definition of qualified medical expenses for employer-provided health and accident plans to limit payment or reimbursement for OTC medicines and drugs only if they are prescribed. The new guidance document, IRS Notice 2011-5, (pdf) amends previously-issued guidance (pdf) that explained the instances in which FSA and HRA debit cards could be used to purchase OTC medications.

Specifically, the new guidance clarifies that such debit cards can continue to be used to purchase OTC medications after January 15, 2011 so long as, among other requirements, 1) the individual has a valid prescription for that medication; 2) the pharmacy or other vendor retains a record of the prescription number, the name of the purchaser (or the name of the person for whom the prescription applies), and the date and amount of the purchase in a manner that meets IRS recordkeeping requirements; and 3) all of these records are available to the employer or its agent upon request. In addition, health FSA and HRA debit cards may continue to be used to purchase OTC medicines or drugs from vendors (other than drugstores and pharmacies, non-health care merchants that have pharmacies, and mail order and web-based vendors that sell prescription drugs) that have health care related Merchant Codes, so long as certain conditions enumerated in the guidance document are met.

The prescription requirement applies to purchases of OTC medications made on or after January 1, 2011, and not to purchases made in 2010 even if reimbursement for those purchases is made in 2011. The prescription requirement also does not apply to purchases of insulin.

More information on the Affordable Care Act’s impact on OTC medicines and drugs can be found here.

This entry was written by Ilyse Schuman.