IRS Issues Guidance on OTC Medicine Costs from FSAs
The IRS has issued guidance on the portion of The Patient Protection and Affordable Care Act (PPACA) that established, effective January 1, 2011, the cost of over-the-counter (OTC) medicine or drugs cannot be reimbursed from FSAs, HRAs, or HSAs unless prescribed by a physician. The change does not affect insulin, even if purchased without a prescription. The rules do not apply to items that are not medicines or drugs, including equipment such as crutches, supplies such as bandages, and diagnostic devices such as blood sugar test kits.
This only applies to purchases made on or after January 1, 2011, so claims for medicines or drugs purchased without a prescription in 2010 can still be reimbursed in 2011, if allowed by your plan.
The IRS is inviting comments on further guidance that may be needed on new designs for debit card systems that could provide substantiation of a prescription for an OTC medication. Comments should be submitted on or before December 27, 2010, and should include a reference to Notice 2010-59.
IRS notice http://www.irs.gov/pub/irs-drop/n-10-59.pdf.