The Patient Protection and Affordable Care Act (the Act) revised the definition of “medical expenses” in the Internal Revenue Code as it relates to the reimbursement of funds used to purchase over-the-counter (OTC) medicine and drugs. Prior to January 1, 2011, the full cost of OTC medicine and drugs was considered a medical expense eligible for reimbursement from a flexible spending account (FSA) or health reimbursement arrangement (HRA). After January 1, 2011, the Act limits the definition of medical expenses to include only OTC medicine and drugs that are insulin or prescribed by a doctor.

Due to this change, if an FSA or HRA permits reimbursement for medical expenses, the HRA or FSA plan document must be amended, no later than June 30, 2011, to conform to the Act. Employers should, therefore, amend the plan document to provide that expenses for OTC medication and drugs will not be reimbursed without a prescription, with the exception of insulin. Alternatively, the employer may choose to amend the plan document to not provide for reimbursement of OTC medicine or drugs, even when the individual has obtained a prescription.