Sept 23, 2010 Update:  We have just updated the 2011 OTC and Medical lists to reflect recently published guidelines from one of the industry groups working with pharmacies and large retailers.   No significant changes from this article (published on 9/22/2010) but it did clarify and expand the Rx / No Rx lists.
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The Patient Protection and Affordable Care Act (the Health Care Reform Bill) enacted on March 23, 2010 included several provisions that impact Flex, HRA and HSA plans and on September 3, 2010 the IRS released guidance regarding one of those changes, Over-The-Counter (OTC) medications. 

EFFECTIVE 1/1/2011, Rx REQUIRED FOR OTC MEDS

Over-The-Counter (OTC) medications purchased on or after January 1, 2011 must be “prescribed” to be reimbursed or paid from:

• Medical Flex Spending Account (Med-FSA / Health FSA),
• Health Reimbursement Arrangement (HRA),
• Health Savings Account (HSA), or
• Archer Medical Savings Account (Archer MSA).

This applies to all plans and all plan years for OTC medications purchased on or after January 1, 2011.  Claims for OTC medications purchased before January 1, 2011 will not be impacted.  If your plan offers reimbursement of OTC medications, you can make your claim for OTC medications purchased before January 1, 2011 as usual.

This change does not apply to insulin and medical supplies, such as bandages and medical equipment.

OTC MEDICATION vs OTC MEDICAL SUPPLY        

What hasn’t been determined is what defines an OTC “medicine” as opposed to an OTC medical supply. 

It is possible that the “Active Ingredient” consumer information may end up as the criteria and, if there “is” an “Active Ingredient” listed then it is a medication or drug and a prescription is required and, if not, then it is a medical supply or product and a prescription is not required. 

For example, it is possible that products such as BenGay^® and Rubbing Alcohol would be considered OTC medications because they have “Active Ingredients” while peroxide and contact lens solutions would be OTC medical products because they do not have “Active Ingredients.” 

Unfortunately, the IRS guidance was not clear and nobody seems to know how or when the full scope of the definition of OTC drugs and medications versus OTC medical products, supplies and equipment will become clarified.  It is likely that the pharmacies and retailers will establish the guidelines in their industry associations and groups. 

OTC MEDICATIONS – ELIGIBLE IF PRESCRIBED

The law change did not make OTC medications ineligible; it added the requirement that the OTC medication must be prescribed to be eligible.  The IRS notice clarified the prescription requirement:

“… a “prescription” means a written or electronic order for a medicine or drug that meets the legal requirements for a prescription in the state in which the medical expense is incurred and that is issued by an individual who is legally authorized to issue a prescription in that state.”

Depending upon the laws of your State, the prescription would need to be written by a physician (M.D, D.O., or N.D.) and in some states Physician’s Assistants and Nurse Practitioners.   While Dentists can write prescriptions, toothbrushes and toothpastes are not eligible, even if prescribed.   

Note:    While the cost of late fees and missed appointment fees paid to your doctor are not eligible because there were no eligible services, reasonable fees charged by your physician to provide or create duplicate medical records, prepare forms and provide medical reports are eligible medical expenses. 

THE DEBIT CARD AND THE OTC CHANGE

The IRS notice also included information on the new OTC medication requirements and Debit Cards.  The Debit Card vendors have an extension until January 15, 2011 to reprogram their systems to ensure that the cards can no longer be used to purchase over-the-counter medicines.  That means that some of the “no receipt retailers” may still authorize payments on an OTC medication during the first two weeks of January. 

HOW TO PAY FOR OTC MEDS WITH YOUR DEBIT CARD

To use your debit card to pay for over-the-counter medications on or after January 1, 2011, you will need to present a copy of a prescription “script” from your physician to the pharmacist and ask them to formally record the transaction and process the payment of the OTC medication as a prescription. 

HOW TO CLAIM OTC MEDICATIONS FOR REIMBURSEMENT

To be reimbursed for OTC medications purchased on or after 1/1/2011, you will need to provide a copy of the prescription with your claim.   For the convenience of our clients, we have a created the Letter of Medical Necessity (LMN) form for you to use to obtain the recommendation (prescription) from your physician.   However, if you give the prescription to the pharmacy and the OTC medication is processed as a prescription, the usual pharmacy receipt should be sufficient documentation with or without a copy of the prescription.

This is the link to the Eligible Medical Expense and Over The Counter Medication Changes flier.
This is the link to the Letter of Medical Necessity (LMN) form .

FlexToday Commentary:              While we all knew that some OTC medication purchases – particularly on the last day of a plan year - were bogus or excessive, in the long-run encouraging people to choose less expensive OTC medications rather than prescription medications was both cost-effective and very efficient.   But, the law has changed and we all have to learn to adapt to the new rules. 

It is just a bit ironic that that the IRS released their recent notice regarding the law change exactly seven years from the day that they re-wrote the rules and allowed OTC medications without a prescription:

9/3/2003, the IRS ruled that OTC medications were eligible without a prescription and allowed that detail register receipts were acceptable documentation for OTC medications and products. 

9/3/2010, the IRS released the Q&A on the 2011 law change that reinstates the prescription requirement for OTC medications.   

It was great while it lasted … but at least cash register receipts are still OK!    

We will update our medical expense list and OTC medication change notice as the situation is clarified over time and we will keep you informed.

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