According to the Internal Revenue Service (the “IRS”), under the recent health care legislation , the cost of an over-the-counter (“OTC”) medicine or drug cannot be reimbursed from a flexible spending arrangement (an “FSA”) (or some similar arrangements), unless a prescription is obtained. This new rule does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eye glasses, contact lenses, co-pays and deductibles. This change applies only to purchases of medicines or drugs made on or after January 1, 2011. Thus, claims for medicines or drugs bought without a prescription in 2010 can still be reimbursed in 2011.
An FSA may need to be amended to reflect the new rules for OTC medicines and drugs. Under IRS Notice 2010-59, an amendment to conform to the new rules (as applied in that Notice) may be made by June 30, 2011, retroactive to any costs for medicines or drugs incurred after December 31, 2010. The FSA must have been operated in a manner which is consistent with the amendment, since the day on which the amendment became effective.