Vigilant Blog

News, trends and analysis in employment law, HR, safety & workers' comp

Sep 17, 2010

New IRS guidance on reimbursement for OTC drugs

Employee Benefits 

The IRS recently issued guidance on section 9003 of the Patient Protection and Affordable Care Act (PPACA), which prohibits health flexible spending arrangements (FSAs) and health reimbursement arrangements (HRAs) from reimbursing expenses for over-the-counter (OTC) medications and drugs obtained without a prescription (IRS Notice 2010-59). This prohibition goes into effect for medications and drugs purchased on or after January 1, 2011. (Items purchased prior to that date may be reimbursed on or after January 1, 2011 according to the terms of the employer’s plan.) The new guidance clarifies that expenses incurred for medicines or drugs may be reimbursed by an employer’s FSA or HRA plan only if: 1) the medicine or drug requires a prescription; or 2) the medicine or drug is available without a prescription but the individual obtains a prescription for it; or 3) the drug is insulin.


A “prescription” is defined to mean a written or electronic order for a medicine or drug that meets the legal requirements of the state in which the medical expense is incurred, and that is issued by an individual who has prescription authority in that state. This means that if a participant submits a claim for an OTC medicine or drug for which they obtained a prescription, the participant will need to provide the plan with a copy of the prescription in order for the expense to be reimbursable. The guidance also points out that other OTC items that are not medicines or drugs, such as crutches, bandages and diagnostic devices, are unaffected by PPACA and remain reimbursable, according to the terms of the employer’s plan. While retroactive plan amendments ordinarily are not permitted, the IRS states that the employer’s plan may be amended as late as June 30, 2011, with retroactive effect, to account for these changes.


Tips: If Vigilant administers your cafeteria plan, we can amend your plan to comply with this change in the law. More details to come!

This website presents general information in nontechnical language. This information is not legal advice. Before applying this information to a specific management decision, consult legal counsel.