As we reported in our December 20, 2010 Update, Section 9003 of the Affordable Care Act added Section 106(f) to the Internal Revenue Code, which revised the definition of medical expenses for employer-sponsored health plans, including flexible spending accounts ("FSAs"). More specifically, beginning January 1, 2011, Section 106(f) provided that expenses incurred for medicines or drugs may only be paid or reimbursed by an employer-sponsored health plan or FSA if the medicine or drug (1) requires a prescription, (2) is available without a prescription and the individual obtains or (3) is insulin.

As a result of this new rule, participant expenses incurred for over-the-counter medications purchased without a prescription prior to January 1, 2011 were reimbursable according to the terms of the plan. However, expenses incurred for over-the-counter medications purchased without a prescription on or after January 1, 2011 could no longer be reimbursed through an FSA. These new rules applied whether the plan is a fiscal-year or calendar-year plan.

Amending Your Cafeteria Plan: Although the regulations generally only permit cafeteria plans to be amended prospectively, employers sponsoring FSAs have until June 30, 2011 to adopt an amendment to retroactively conform their cafeteria plan to the new requirements regarding over-the-counter medications and drugs. Should you have any questions regarding these new requirements or amending your cafeteria plan, please be sure to consult with your FSA administrator or your company's relationship attorney.