Tax treatment of OTC drugs
Applies to grandfathered and non-grandfathered plans
Requirement overview
Beginning 1/1/2011, pre-tax expenses for over-the-counter (OTC) drugs purchased through an HRA, FSA or HSA will require a doctor's prescription.
Exceptions include:
- Insulin, which will not require a prescription for reimbursement
- Items that are not medicines or drugs, such as crutches, bandages, blood sugar test kits, etc.
What Priority Health is doing
- As of 1/1/2011, we will not allow an FSA to pay for an OTC item unless it has been prescribed by a doctor. (See a list of expenses eligible for FSA reimbursement.)
- We do not currently reimburse OTC drugs from HRAs.
- HSA account holders manage their own disbursements, so we don't have to do anything. We do have a list of eligible HSA expenses members can reference. See the list.
- We will update our "HSAs for Dummies" book with this information.
What you need to do
- Employers with FSAs will need to modify their Section 125 plan document.
- Employers will need to educate employees with HSAs about the changes.
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