There have been at least two recent changes affecting health flexible spending accounts (FSAs) that require plan amendments. Contact your plan document vendor to be sure these and other recent changes in the law will be timely reflected in your plan documents.

Reimbursement of Over-the-Counter Medications

Effective as of January 1, 2011, an FSA may reimburse expenses incurred by participants for medicines or drugs only if the medicine or drug: (1) requires a prescription; (2) is available without a prescription and the participant obtains a prescription; or (3) is insulin.

These changes do not affect the reimbursement of non-prescription medical items that are not medicine or drugs—for example, medical equipment like crutches, supplies (e.g. bandages), and diagnostic devices such as blood sugar kits. There is a limited exception to this rule for over-the-counter medications purchased no later than January 15, 2011 using a health FSA debit card. These restrictions also apply to health reimbursement arrangements (HRAs), health savings accounts (HSAs), and Archer medical savings accounts (Archer MSAs).

FSAs must be amended by June 30, 2011 to conform to these new over-the-counter drug reimbursement restrictions.

Coverage of Adult Children

Under Federal Health Care Reform, group health plans providing dependent coverage for children must extend that coverage to adult children until they reach age 26, effective for plan years beginning on or after September 23, 2010.

This change is temporarily modified for plans that are considered "grandfathered group health plans." Until January 1, 2014, grandfathered plans need not offer coverage to an employee's adult child who is eligible to enroll in a different group health plan (aside from that of the child's other parent).

Health FSAs that are funded only through employee contributions are not considered "group health plans" for purposes of this adult child coverage rule under current legal guidance. So, many FSAs are not required to reimburse medical expenses of an employee's adult children up to age 26.

But many employers will want to conform their FSA to the terms of the core health plan, and in fact can voluntarily allow the reimbursement of medical expenses of an employee's adult children up through the end of the tax year in which the child turns 26.

Employers need to be sure their health plan documents—including FSA and other cafeteria plan documents, which are sometimes handled by a different vendor than the one that handles the core health plan—are amended to reflect this new eligibility rule.