On September 3, 2003, the IRS announced that over-the-counter medicine and drugs may be reimbursed from a health Flexible Spending Account (HFSA).

This is an emerging issue. The IRS left many questions unanswered. Determining precisely how this ruling will affect all of us will take some time. More details will follow, the industry and the IRS work through the details.

When is this effective? This is effective retroactively. Over-the-counter (OTC) medicine and drugs purchased during a participant's current period of coverage OR during a prior period of coverage that is still within the grace period may be reimbursed. If an OTC expense was previously denied, participants may resubmit the claim.


What constitutes an over-the-counter medicine or drug? OTC medicine and drugs are eligible; dietary supplements are not eligible. These are the terms used by the IRS, and little or no guidance is given to help make the distinction between the two. This is one of the fundamental questions left unanswered by the guidance.

What expenses are eligible? Medicines and drugs that treat a medical condition. Only "medicine and drugs" as the term is commonly understood may be considered.

• Cold medicines
• Allergy medicines
• Aspirin and other pain relievers
• Antacids

What expenses are ineligible? There are now four categories of ineligible drugs:

1. Toiletries and cosmetics such as toothpaste, shaving cream, face creams, deodorants, hand lotions
2. Illegal medicines or drugs
3. Cosmetic drugs-both prescription-only and OTC formulations still require a physician's statement demonstrating an underlying medical condition

• Weight-loss drugs including
  o   Meridia
  o   Dexatrim

• Appearance enhancing drugs including
  o   Retin A
  o   Rogaine

4. Dietary supplements

• Vitamins

• Pre-natal vitamins

Some expenses do not readily fit into a category; they might be either medicines or drugs OR dietary supplements. Until we receive further guidance from the IRS, we will require a physician's statement for the following:

• Chinese herbal remedies

• Herbs, herbal supplements, herbal medicines

• Homeopathic remedies

• Naturopathic remedies

• Natural medicines

What are the expense substantiation requirements? Participants must still substantiate their claims with receipts from the provider. The receipt must show the drug name; if it does not, they may hand-write the drug name on the receipt.

Is mileage eligible? Mileage to and from a store where a participant purchases eligible OTC drugs may be reimbursed if the primary reason for the trip is to buy the drug.

 

For additional insight to your firm's individual needs and for ideas that might be of assistance…

Contact the Jamison professionals to hear our

Solutions