The Treasury Department and the IRS have announced that certain over-the-counter (OTC) drugs can be reimbursed through employers’ flexible spending accounts (FSAs). This means that reimbursements by FSAs and other employer health plans allow employees to make their purchases with pretax dollars.
Many drugs are increasingly available without a prescription, but OTC drugs can actually be more expensive than their prescription counterparts. That’s because the price paid at the store is greater than a co-pay amount for a prescription. Hit hardest are employees who remedy chronic health problems such as allergies with OTC medications.
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Under the new rules, certain OTC medicines and drugs now qualify as expenditures for “medical care.” Allowable FSA medical care expenses include amounts paid for diagnosing, curing, mitigating, treating, or preventing disease, or “for the purpose of affecting any structure or function of the body.” Drugs such as antacids, allergy pills, pain relievers, and cold medicine are eligible for FSA reimbursement
The ruling excludes reimbursements for purchases of toiletries, cosmetics, and other items such as toothpaste, hair spray, and soap. Dietary supplements that are merely beneficial, such as vitamins, don’t qualify as reimbursable medical expenses.
For employees to take advantage of this benefit, your plan must specifically cover OTC reimbursement. Currently, many FSA plans reimburse for prescription drugs only. If, however, your plan covers all expenses allowed by the IRS, OTC drugs will be automatically covered. Keep in mind that changing your plan to cover OTC drugs will increase plan administration time and possibly costs. It will, however, make it easier for employees to spend remaining funds in an FSA that would otherwise be forfeited at the end of a benefit year.