For three years, Bola Oyeyipo-Ajumobi has participated in her companyâ€™s flexible spending account program to purchase contact lens solution, a blood pressure machine, allergy medicine, and cough medicine for her 3-year-old and 6-month-old children. She typically contributes between $500 and $1,000 a year, and has saved an estimated $200 each year that sheâ€™s participated. But as of Jan.1, a new provision under the Affordable Care Act prevents employees from getting reimbursed for purchases of over-the-counter medications without a prescription.
â€śIt will be a hassle, because when my child has a cold, I just want to pick up something quickly,â€ť says Oyeyipo-Ajumobi, 34. As a result of the new rules, she reduced her contribution to $250 and stocked up on cold medicine. The new stipulation also applies to employees who hold health savings accounts, health reimbursement arrangements, and Archer medical savings accounts.
FSA participation benefits employees because the money they contribute to their plans isnâ€™t taxed as income. These accounts helped to offset the 30% rise in yearly out-of-pocket health costs Americans paid between 2001 and 2006, according to HealthReform.gov.
The Affordable Care Act will soon be effecting another change: capping the amount that can be deposited into FSAs at $2,500 per employee, down from the current $5,000. But this change doesnâ€™t go into effect until 2013.
For now, hereâ€™s what you should be aware of:
- Over-the-counter drugs that now require a prescription for participants to be reimbursed include allergy and sinus medications, pain relievers, and nutritional supplements.
- Non-prescription items still eligible for reimbursement include birth control products, reading eyeglasses, and diabetic supplies like insulin. Fortunately for Oyeyipo-Ajumobi, contact lens solution is still an eligible item. For a full list, go to IRS.gov and search for Publication 502, Medical and Dental Expenses. You can also still use your FSA to pay co-payments and co-insurance deductibles.
- Youâ€™ll need to keep a copy of your prescription along with your receipts when you submit your claim for reimbursement, says Sara Taylor, a benefits consultant at Aon Hewitt, a human resources consulting firm.
- If your FSA plan provides a debit card, as of Jan. 1 you cannot use it to buy over-the-counter drugs. Your card can still be used to purchase medical care items, such as bandages, that are not medicine or drugs.
- According to the IRS, 2010 FSA participants can be reimbursed for eligible purchases made through March 15 if their employer allows a grace period. The only exception is that over-the-counter medications must have a prescription if they were purchased on or after Jan. 1. If you purchased the medication before Jan. 1 and have not submitted your claim for reimbursement, you can do so up to March 15.
- Plan ahead and think about the pharmaceuticals youâ€™d usually buy. â€śWhen you see your doctor, discuss the need for prescriptions rather than calling six weeks later for a prescription for aspirin,â€ť says Dr. Michael Bihari, a health insurance guide at About.com.
- If you purchase ineligible items using another type of health savings account, like an HSA or Archer MSA, those medical expenses will be included in your gross income and be subjected to an additional tax of 20%.