Health Care Reform is has brought many changes to the way Tax-Favored Accounts work. Effective January 1, 2011, OTC medicines and drugs were no longer eligible for reimbursement under a Flexible Spending Account (FSA) or Health Reimbursement Account (HRA) without a valid physician's prescription.
Penalties for non-qualified distributions from a Health Savings Account (HSA) and a Medical Savings Account (MSA) participants increased in 2011 from 10% to 20%. This means that if you, your spouse or dependent use money from your HSA/MSA for an ineligible expense, the distribution is included in your gross income and is subject to a 20% tax penalty. So be careful when managing your HSA/MSA expenses to ensure all your expenses are eligible under your plan.
The new health care law capped an employee's contribution to a Medical FSAs. Effective in 2014, all Medical FSA employee contributions are limited to $2,500. Employers have the discretion to set the cap lower if they wish.
Effective January 1, 2011, Over-the-Counter (OTC) drugs and medicines are no longer eligible for reimbursement under an FSA or HRA without a prescription from your attending provider. This includes OTC items like:
- digestive aids
- allergy drugs
- pain relief
- cold and cough medicines
- sleep aids
- anti-gas meds
- baby rash creams
- insect bite treatments.
Items like eyeglasses, wrist splints and band aids, as well as durable medical items such as crutches and canes, will continue to be reimbursed without a doctor’s prescription.
If you wish to continue purchasing and submitting claims for tax-free OTCs you must obtain a doctor’s prescription for the items you want reimbursed.
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