As we reported in October, the Internal Revenue Service (“IRS”) issued Notice 2010-59 which provided guidance to plan sponsors regarding the changes that the Patient Protection and Affordable Care Act made to the Internal Revenue Code with respect to the payment or reimbursement of over-the-counter medications. As a reminder to all plan sponsors, after December 31, 2010, employee expenses that were incurred for medicines or drugs may be reimbursed under a FSA or HRA only if (1) the medicine or drug requires a prescription, (2) is available without a prescription and the employee obtains a prescription 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 can be reimbursed 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 cannot be reimbursed through an FSA or HRA. These rules apply whether the plan is a fiscal-year or calendar-year plan.

Additionally, because the current debit card systems are not capable of substantiating that medicines and drugs were prescribed, health FSA and HRA debit cards cannot be used to purchase over-the-counter medicines or drugs for expenses incurred on or after January 1, 2011. However, the IRS has indicated that it will not challenge the use of health FSA and HRA debit cards for expenses incurred through January 15, 2011. On or after January 16, 2011, over-the-counter medicine or drug purchases must be substantiated before reimbursement can be made. Substantiation is accomplished by submitting a copy of the prescription.