On December 23, the IRS issued new guidance that ALLOWS the use of health care debit cards for the purchase of over-the-counter (OTC) medicines and drugs effective January 1, 2011.
This is a welcome modification of the previous guidance that would have prohibited the use of FSA/HRA debit cards for the purchase of OTC medicines and drugs. Under the new guidance, participants can continue using FSA and HRA debit cards to purchase over-the-counter medications provided the participant has a valid prescription for those items. Effective January 15, 2011, in accordance with the new guidance, this use of debit cards must comply with procedures reflecting those that pharmacies currently follow when selling prescribed medicines or drugs.
The procedures include requirements that a prescription for the medication be presented to the pharmacy or the mail order/Web-based vendor that dispenses the medication and that proper records be retained.
In accordance with the Affordable Care Act, the cost of OTC medicines or drugs can be reimbursed from a health FSA or HRA if a prescription has been obtained. The requirement to obtain a prescription does not apply to insulin. Please note that these items will only be covered under your FSA or HRA Plan if your Plan covers OTC drugs and medicines. Please consult your Summary Plan Description.
Please note that the prescription requirement applies to purchases made on or after January 1, 2011, and not to purchases made in 2010 even if those purchases are reimbursed after December 31, 2010. Because the requirement applies only to OTC medications, it does not apply to other health care expenses such as medical devices, eye glasses or contact lenses.
Details about the new guidance can be found on the IRS Web site, including answers to frequently asked questions and additional information about health FSA and HRA debit card purchases (such as purchases from health care providers other than pharmacies and mail order/Web-based vendors).
For guidance on health FSA and HRA debit card purchases at “90 percent pharmacies,” refer to IRS Notice 2010-59. More information on health care reform provisions can be found on the Affordable Care Act page of the IRS Web site.