MEDICAL SPENDING ACCOUNTS

FSA/HRA/HSA

 

The Affordable Care Act established a uniform standard effective January 1, 2011 that applies to all tax-favored arrangements, such as flexible spending arrangements (FSAs), health reimbursement accounts (HRAs) and health savings accounts (HSAs). The IRS has issued guidance for these changes as they apply to tax-favored arrangements used to pay for over-the-counter medicines and drugs. Under this standard, the cost of an over-the-counter (OTC) medicine or drug cannot be reimbursed from the account unless a prescription is obtained; whereas previously, OTC drugs were permissible for reimbursement under FSAs without a prescription.

 

This standard does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eye glasses, contact lenses, co-pays and deductibles. The standard applies only to purchases made on or after January 1, 2011. 

 

In 2011, the tax penalty on withdrawals from HSAs for reasons other than the reimbursement of qualified medical expenses increased to 20%.


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