The Patient Protection and Affordable Care Act (the “Affordable Care Act”) was enacted on March 23, 2010.  

The Affordable Care Act (a.k.a Health Care Reform) represents a massive overhaul of the health insurance market and system in the United States. On Friday, September 3, 2010, the Internal Revenue Service (“IRS”) issued Notice 2010-59 to provide guidance to plan sponsors regarding the changes the Affordable Care Act made with respect to the payment or reimbursement of over-the-counter medications. The Affordable Care Act revises the Internal Revenue Code’s definition of medical expenses for employerprovided health plans, including flexible spending accounts (FSAs) and health reimbursement accounts (HRAs). Beginning 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 Section, 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, according to the Notice, 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 overthe- counter medicines or drugs for expenses incurred on or after January 1, 2011. Nevertheless, the Notice also notes that the IRS will not challenge the use of health FSA and HRA debit cards for expenses incurred through January 15, 2011. However, 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.

Cafeteria plans may need to be amended to comply with the new over-the-counter requirements. Although the Treasury regulations only permit cafeteria plans to be amended prospectively, the Notice indicates that an amendment to conform a plan to these new requirements can be adopted no later than June 30, 2011.