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New rules on HSAs may surprise you at the pharmacy

hsa-prescription-rulesYou may encounter new challenges the next time you visit a drug store to buy over-the-counter medicine – if you plan to use your flexible spending or health savings account.

Without a prescription or a letter from your doctor, most over-the-counter drugs will no longer be reimbursable through flexible spending accounts (FSAs), health savings accounts (HSAs), health reimbursement accounts or Archer medical savings accounts. Beginning on Jan. 16, you will not be able to use your health care debit card to purchase these medications. This change is part of the health care reform legislation that was passed in 2010.

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The new rule applies to hundreds of products, including pain relievers, cold and flu remedies, antacids, allergy medicines, laxatives and sleep aids. The restriction does not apply to some categories, such as insulin, diabetic supplies, bandages and durable medical equipment.

How to get HSA reimbursement

At your next doctor visit, ask for a prescription or a letter of medical necessity if you need these over-the-counter drugs.

To submit a claim to your HSA or FSA, you will need to provide both proof of prescription and proof of purchase, such as a receipt showing the amount paid and date of sale. These accounts operate differently from traditional health insurance because typically, health insurance plans do not reimburse patients for over-the-counter medications.

If you use HSA funds or Archer MSA funds for over-the-counter drugs without a prescription, that amount will be included in your gross income and subject to an additional 20 percent tax.

Traditionally, unused contributions made to FSAs in the current year could be rolled over to pay for medical expenses incurred during the first 2½ months in the following year. However, the unused 2010 funds cannot be used to purchase over-the-counter drugs in 2011 unless you have a prescription.

If your employer offers health insurance and FSAs or HSAs, keep this rule in mind when determining how much money to contribute in future years.

Funds in FSAs and HSAs are not subject to income tax. The new rule raises revenue for the federal government, since consumers won't be able to pay for some drugs with tax-free money.

New HSA rule causes controversy

Jody Dietel, a chief compliance officer at WageWorks, a provider of FSAs, says some lawmakers supported the new rule because they felt there was too much wasteful and unnecessary spending on over-the-counter drugs at the end of the year due to the use-it-or-lose-it rule that applies to FSAs.

The Consumer Healthcare Products Association, National Association of Chain Drug Stores, National Grocers Association, Food Marketing Institute, American Pharmacists Association and the National Community Pharmacists Association are seeking a repeal or delay of the new rule.

“This new rule will raise health care costs for consumers because they will need to go to the doctor for a prescription for their over-the-counter medicine to get it reimbursed,” says Katie Bryan, a spokesperson for the Consumer Healthcare Products Association. “This will cost them both time and money. Removing [over-the-counter drugs] from FSAs increases consumer cost for these medicines by up to 35 percent, depending on their tax bracket."

Some health insurance industry experts say additional doctor visits to obtain prescriptions for over-the-counter drugs will increase costs for the entire health care system and possibly delay treatment due to an increased number of appointments.

Over-the-counter drugs “save the health care system billions of dollars every year through fewer unnecessary doctors' visits, less time lost from work and cost savings when compared to prescription medicines,” says Bryan. “It's ironic in the days of health care reform -- where we're looking for more value and greater access to medicines -- that we're taking away a tax benefit that actually is working for consumers and for society at large."

Seventy-two percent of employers offer FSAs with health insurance coverage, while 11 percent offer HSAs, and 6 percent offer health reimbursement arrangements, according to the Society for Human Resource Management.

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