Little Guidance Offered On OTCs

The health care reform seems to be all the buzz these days.  It’s plastered all over the television, written about constantly in newspapers and magazines and even debated among family and friends.  With all the hoopla, one could assume that there are some clear cut answers out there.  However, in the case of exactly how the health care reform legislation will impact Health Care Spending Accounts, little guidance has been offered.  This may be partly to blame on the fact that many times concepts that are written to law may seem simple but become rather complex when put into actual practice; who carries out what part of the law and how?

Nevertheless, one part of the reform that is quite clear is that over-the-counter (OTC) drugs and medicines will no longer be eligible without a directive from a provider beginning January 1, 2011.  So, whereas before the customer could be reimbursed for say, Tylenol or Claritin, starting in January of 2011 those items will no longer be eligible for reimbursement. The customer or participant may still be able to purchase the item using their Health Care FSA, but in order to be reimbursed for OTC items, the following must be completed:

• Obtain a letter of medical necessity from the provider
• Obtain receipts
• Complete the reimbursement request form and submit all items above to the carrier 

At the surface, the law appears to be pretty straightforward. Unfortunately, nothing is as simple as it appears to be; at least not when you go beyond the obvious cases such as Tylenol, Claritin and the like.  A good example is bandages.  Bandages, by themselves, are not affected by the prohibition, but what about medicated bandages?  Is that considered a medicine or not?  Looking at existing tax regulations won’t help us, given that these regulations define “medicine and drugs” as “items (…) which are generally accepted as falling within the category of medicine or drugs.” Not very helpful.  Additionally, what constitutes a “prescription”?  Are there special forms for the medical practitioner to fill out?  Or, does anything have to be filled out at all?  As of right now, the answers to these questions are unclear. 

There has also been some talk about leniency being granted to plans or plan participants whose plan years overlap the January 1, 2011 date.  Rumor has it that one to six month “transition relief” periods are being considered.  Whether or not this rumor will come into fruition is still a big question.  After all, the law as written is quite clear that the drop-dead date is January 1, 2011, regardless of plan year dates.  

So, what should you do with all this health care reform information?  Nothing but sit and wait.  The good news is that the IRS is well aware of the hardships the new legislation will cause and will likely make every attempt to mitigate the burden imposed by the law.  The more good news is that Pierce Group Benefits is also well aware that the new legislation may bring new issues and questions to the table.  We are fully prepared and equipped to answer your questions and help solve your problems as they arise and will make every effort to ensure that the January 1, 2011 transition (and all future transitions for that matter) is a smooth one.

*Information obtained from Roger Abramson, General Councel at Ameriflex