New OTC Rules

In March, President Obama signed the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively "the Act"). The Act includes a number of modifications to employee benefit programs.

One provision that will affect employee participants beginning January 1, 2011 is the requirement for over-the-counter (OTC) drugs, medicines and biologicals to be accompanied by a physician's prescription in order to be reimbursed under health flexible spending accounts (FSAs), health reimbursement arrangements (HRAs) and health savings accounts (HSAs). Below is a summary of this change and how it will impact participants.

CHANGES TO OVER-THE-COUNTER ELIGIBILITY FOR REIMBURSEMENT

Under the Act, OTC drugs, medicines and biologicals will continue to be eligible for reimbursement as long as the request is accompanied by a doctor's prescription. This means items such as cough medicines, pain relievers, acid controllers, and diaper rash ointment will now require a doctor's prescription to be submitted along with the reimbursement request. Insulin and other OTC items, such as band-aids, will continue to be eligible without a prescription.

Since this change applies to all expenses incurred on or after January 1, 2011 it will affect all plans and participants at the same time, regardless of the plan year.

OTC drug expenses incurred on or after January 1, 2011 will require a doctor's prescription in order to be reimbursed under a health FSA, HRA, or HSA. Expenses incurred prior to January 1, 2011 will not. For example, an expense made on December 31, 2010 will still be reimbursed without a prescription, while an expense incurred after December 31, 2010 will require a doctor's prescription to be reimbursed.

Purchases of OTC drugs, medicines and biologicals after December 31, 2010 will require another form of payment (other than debit card). Once this out-of-pocket payment is made, the employee will be required to submit their receipts (indicating the date, amount, provider, and service description) along with a reimbursement form to Chappelle/BenefitElect along with the doctor's prescription for the OTC drug, medicine or biological purchase.

Other facts to know:

• "Prescription" is defined as written or electronic order for medicine or drug.
  • Prescriber must be legally authorized to issue a prescription in that state and meet requirements of "applicable state law"
• IRS allows current compliant IIAS merchants to continue auto-approval through January 15, 2010
• Two ways to substantiate items:
  • Participant provides a receipt with an Rx number from pharmacy
  • Participant provides a receipt with a copy of prescription
  • Therefore, [except as under January 15 transition rule], for expenses incurred on and after January 1, 2011, health FSA and HRA debit cards may not be used to purchase over-the-counter medicines or drugs.
• Allows HSA "shoe shoe-boxed" claims from before 12/31/2010
• For now, debit cards can be used for OTC at an 90% Merchant as long as substantiation occurs after the fact (subject to future IRS guidance change)

Though the specific list of items affected has not been completely assessed, the following categories of items will require a doctor's prescription and cannot be purchased using a health care debit card:

The following are examples of some of the OTC items that will remain available without a doctor's prescription (can use a Debit Card for these transactions):

Should you have any questions please do not hesitate to contact Chappelle/Benefit Elect at 1-800-257-0986.