Benefits and Compensation

House Nod on Repealing OTC Rules, Easing ‘Use-it-or-Lose-it’

The rules on how expenditures for over-the-counter drugs are reimbursed and governing health flexible spending account balances still unused at the end of the year could change if a bill the House passed on June 7 is enacted. In a 270-146 vote, the House approved H.R. 436, the Health Care Cost Reduction Act of 2012. Rep. Erik Paulsen, R-Minn., introduced the measure.

The bill includes a provision that would repeal the Patient Protection and Affordable Care Act requirement that OTC medications must be prescribed by a physician in order for OTC drug purchases to be reimbursed through health flexible spending accounts, health savings accounts and health reimbursement arrangements. The bill also would repeal the 20-percent excise tax imposed on reimbursements for expenses incurred for OTC medications for which a physician had not written a prescription.

H.R. 436 also would ease the “use-it-or-lose-it” rule that says health FSA balances left at the end of the plan year cannot be carried over and will be lost at the end of the year. It would allow plan participants distributions of the lesser of (1) $500 or (2) the amount by which salary reduction contributions made under the FSA for the plan year exceed the reimbursements for expenses incurred for medical care made under that arrangement during the plan year.

The bill would give plan participants seven months after the end of the plan year to seek such distributions. That far exceeds the current grace period rule, under which employers can give health FSA plan participants up to two and one-half months after the end of the plan year to seek reimbursements through balances left at the end of the plan year.

The generosity H.R. 436 ends there, however — the distributions would be included in the participant’s gross income for the year in which they were paid.

H.R. 436 has been placed on the Senate calendar.

What’s Next

Paulsen’s bill strikes a chord in the House, where other members have introduced similar measures. Rep. Lynn Jenkins, R.-Kans., on May 18 introduced H.R. 5842, another bill that seeks to repeal the OTC rules. The House Ways and Means Committee reported the bill to the House on May 31. And Sen. Pat Roberts, R-Kans., introduced similar legislation in his chamber.

The prospects for these measures in the House may be better than in the Senate, given the party control in those chambers. And even if the Senate follows the House lead on H.R. 436, it is unlikely that the president would sign it into law.

Employers and plan administrators should keep in mind that even though this legislation is wending its way through Capitol Hill, the rules governing OTC medications and how they can be covered through FSAs, HSAs and HRAs remain in force. Also, the “use-it-or-lose-it” rule and the way grace periods are offered and run remain the same.

Therefore, individuals covered by FSAs, HSAs and HRAs must continue to obtain prescriptions for OTC medications in order to be reimbursed for those expenditures through them. And plan administrators must continue applying the current rules regarding unused FSA balances for the time being.

Leave a Reply

Your email address will not be published. Required fields are marked *