The New Year ushered in the new over-the-counter (OTC) rules dictated by the Patient Protection and Affordable Care Act (PPACA).  In the October 2010 issue of the Quarterly Review, we were still unclear as to how merchants would be in compliance with IRS Revenue Notice 2010-59, and it was also uncertain as to whether or not health care cards would still be a viable payment option for over-the counter (OTC) prescriptions, or if the industry would have to “turn off” that payment option to the detriment of merchants, administrators, employers and most importantly participants.  Well, as usual, December was a busy month for both the IRS and Treasury, and thankfully, part of the late night guidance that came out clarified issues we had regarding the payment cards for OTC.

Benefits Alert 2010-09

As most of you know, the Patient Protection and Affordable Care Act (PPACA), Section 9003 established a new uniform standard for medical expenses. Only prescribed medicines or drugs (including over-the-counter medicines and drugs that are prescribed) and insulin will be considered qualifying medical expenses and subject to preferred tax treatment. Items for medical care that are not medicines or drugs are still eligible; for example: crutches, bandages, contact lens solution, and diagnostic devices. Dual purpose items such as band aids with Neosporin are eligible where Neosporin itself would not be. The eligibility decision is based upon the primary purpose of the item. In the example, the band aid is primary and Neosporin is secondary to the purpose.

A frequent question is how a participant will prove purchase of an over-the-counter medicine or drug with a prescription so that he/she may be reimbursed from a tax-favored account, including Medical Flexible Spending Arrangements (MFSA), Health Reimbursement Arrangement (HRA), Health Savings Account (HSA), and Archer Medical Savings Accounts (MSAs).