OTC drugs require prescriptions for account reimbursement

Key Points

Saving cash on over-the-counter (OTC) drugs has just gotten tougher for employees with tax-advantaged health accounts, including flexible spending arrangements (FSAs), health reimbursement arrangements (HRAs) and health savings accounts (HSAs). The Patient Protection and Affordable Care Act (PPACA) requires account holders to have a prescription for an OTC drug to quality for account reimbursement and preferred tax treatment starting this month.

Insulin and OTC medical devices and supplies are exempt.

Robert Zirkelbach, spokesman for America's Health Insurance Plans, sees the new ruling as flawed.

Dorothy Miraglia, principal, strategic benefit solutions, AlphaStaff, a human resource outsourcing company based in Fort Lauderdale, sees the new ruling as having a positive effect on patient engagement. She believes that employees should be encouraged from the onset of a problem to visit their physicians before even buying an OTC drug, which she says could ensure use of the most effective medicine, avoid any contraindicated drugs and produce better healthcare purchasers and communicators.

"Just because a drug is available OTC doesn't mean it is any less potent than a prescribed medication," she says. "If account holders really want to be reimbursed for OTC drugs, they will get a prescription."

Miraglia is confident that the new OTC ruling will not affect participation in tax-advantaged accounts, which she believes offer employees many benefits. She agrees that having to obtain a prescription will be inconvenient.

In order for tax-favored account holders to receive reimbursement from their tax-advantaged accounts for OTC drugs, they will need to pay out-of-pocket and submit a prescription and receipt for the purchase. FSA/HRA debit cards can still be used for a drug transaction according to recently updated rules, and consumers may purchase health-related products, such as bandages and thermometers. Consumers must follow the new rules carefully because account withdrawals for payment of non-qualifying medical expenses will be reflect in an employee's gross income and subject to an additional tax of 20%.

A written or electronic order for a drug that meets the legal requirements of a prescription in the state in which the medical expense is incurred and that is issued by an individual who is legally authorized to issue the prescription is required. A simple doctor's note will not suffice for the tax benefit.

David Goldfarb, founder and principal, DSG Benefits Group, an employee benefits brokerage and consulting firm headquartered in Dallas, anticipates that the new ruling may make tax-advantaged accounts less desirable and will undoubtedly have a cost impact on both employees and payers through an increase in premiums.