Over-the-counter medicines or drugs purchased without a prescription on or after January 1, 2011 (other than insulin) may no longer be paid for or reimbursed under health flexible spending arrangements (“health FSAs”), health reimbursement arrangements (“HRAs”), health savings accounts (“HSAs”) or Archer Medical Savings Accounts (“Archer MSAs”). The IRS recently released Notice 2010-59 and Q&As, which provide further guidance on these changes made by the Affordable Care Act (the “OTC Changes”). The OTC Changes impact participant benefits under health FSAs, HRAs, HSAs and Archer MSAs on and after January 1, 2011, including the health FSA grace period for the 2010 plan year, and also affect the use of electronic debit cards. An arrangement’s failure to comply with the OTC Changes may result in an adverse tax impact on participants. In addition, plan amendments may be required. The guidance discussed in this alert is generally effective January 1, 2011, although certain exceptions apply, as noted below.
Late last week the IRS and the Department of Health and Human Services (HHS) released updated guidance on two important provisions of the Patient Protection and Affordable Care Act (PPACA) affecting consumer and employer benefits.