Employee Benefits-The IRS Provides Additional Guidance On FSA and HRA Debit Cards

According to IR-2010-128 (12/23/10), the Internal Revenue Service (the “IRS”) has issued guidance permitting the continued use of debit cards, for the purchase of prescribed over-the-counter medicines and drugs, in conjunction with a health flexible spending arrangement (an “FSA”) or a health reimbursement arrangement (an “HRA”). The new guidance, IRS Notice 2011-5 and new FAQs: (1) require that, after January 15, 2011, the use of debit cards to make these purchases must comply with procedures reflecting those that pharmacies currently follow when selling prescribed medicines or drugs (including that a prescription for the medication be presented to the pharmacy (or the mail-order or web-based vendor) that dispenses the medication, and that proper records be retained), and (2) contain details on health FSA and HRA debit card purchases, including purchases from health care providers other than pharmacies and mail order and web-based vendors.

The IRS release refers to the requirement, in the Affordable Care Act, under which the cost of over-the-counter medicines or drugs (other than insulin) cannot be reimbursed from a health FSA or HRA , unless a prescription has been obtained. It reminds us that this requirement applies to purchases made on or after Jan. 1, 2011, and not to purchases made in 2010 even if reimbursed after 2010. It also reminds us that the requirement applies only to over-the-counter medications, and does not apply to other health care expenses such as medical devices, eye glasses or contact lenses.