So I got a notice from my company that beginning 1/1/2011, I can no longer use my FSA allocations to pay for OTC meds. Thankfully, this won’t impact me, as I have already spent most of it on other stuff, but our plan year goes through 3/30/2011, and we did not have this info when making our FSA allocations way back in 2009, so obviously some people at my company are probably going to get screwed by this unless they really stock up in the coming months.
My question, though, is what part of the Healthcare Reform Act made this change, and just who the fuck thought it was a good idea to exempt OTC meds from Flex spending? Are there people out there who use their FSA money to buy NyQuil and get drunk off it or something? Making meth out of FSA purchased pseudoephedrine? What’s the rationale for this?
Because you can share the drugs with others, who don’t have such things. If I have a bunch of Valiums I am probably not gonna share them with others, but if I have Tylenol, I’ll buy a bunch and give or trade them others without thought.
You know I’ll give you a bottle of Tylenol and you buy me lunch kind of trade off.
Sure you could do that with Valium or any other prescription drug but you’re less likely to
I would also imagine that it could be an issue that OTC drugs are, by definition, able to be taken outside of medical supervision, and thus there is no real way to verify that the OTC stuff you are buying is medically necessary.
My friend just told me she heard that you are to ask your doctor for a prescription for your OTC meds and submit paper forms to get reinbursed. That using your benifits mastercard won’t work. I imagine that’s either speculation or wishful thinking at this point. :dubious:
If you get a prescription from your doctor, and present it to the pharmacy, they can fill it as a prescription which would allow you to use your flex card to pay just like you would for a copay. We can fill any OTC medication as a prescription if you get one from the doctor, just make sure you tell the pharmacy when you drop it off that you know it won’t be covered by insurance.
Nah, the new rule was included in HCR to lower its cost (to the government, not you). For the same reason, starting in 2013 the maximum annual FSA contribution will be lowered from $5000 to $2500.
Perhaps it’s because OTC drugs are considered normal life expenses. How much of a big deal is it anyway? A FSA just means you don’t have to pay taxes on the money. It’s not free money. Any money in the account was taken out of their salary pre tax. How many people are spending thousands of dollars on OTC meds?
My guess is that it’s difficult to track OTC med purchases as legitimate and there’s a lot of fraud.
My understanding is that it applies the same standards to all medications, with regards to buying them with pre-tax dollars on a flex plan.
If you hadn’t guessed already, this comes from the IRS, never a group known for being friendly to consumers.
As noted above, you can get a prescription for OTC meds from your doctor. You’ll have to buy the stuff out of pocket, then submit the Rx and receipts on a “pay me back” form. I predict doctors will soon have generic “shopping list” prescription pads where they just have to tick off the checkboxes next to the more popualr OTC meds. More likely, they’ll just give you the blank and you check off what you want to buy. It’s just an end-run around silly legislation and I’m sure most doctors will be appropriately bothered by it, hence the expectaion they’ll just give you a blank form. Not like there isn’t enough paperwork in their lives already.
Well, the big deal is that you don’t get your unused money back from the FSA company. So yeah, the tax you save by using an FSA might not be much, but if you’ve got $50 bucks that you haven’t used by the end of the year it’s nice to be able to stock up on stuff you’ll use anyway (like pain relievers and cold medicine) so you don’t lose that money. Now you have to bother a Dr. to get that stuff, or find some other way to use the leftover funds. And what I will probably do is reduce the amount I put in the FSA next year.
Umm, I also have an HSA, and it is funded by pre-tax dollars. Specifically, my employer makes a monthly contribution into the account, and none of that money are reported as taxable income, and no taxes are due on withdrawals for qualified expenses. So I am impacted by the change, because I could no longer get OTC medications essentially for free.
Any time the government makes things “fair” you can bet that hard-working people who pay their bills are going to get screwed.
But to address it from a GQ perspective, this change in FSA and HSA spending makes them equivalent to the medical deductions. I have long advised HSAs to clients because they literally provide a loophole to make OTC medications tax-deductible. There are things you can be reimbursed for from FSA/HSA plans that you cannot deduct on Sch A.
By eliminating OTC drugs, the new law makes deductible medical expenses the same regardless of how you pay for them. (Well, except that Sch A still shaves off the first 7.5% of AGI, and that’s going to go up to 10%).
Overall, I would applaud that move, because it’s a step that simplifies and unifies the tax code. But… it’s that bump up in the Sch A medical deduction floor that tells you what the government is really doing: they’re increasing taxes by permitting fewer deductions.
I don’t believe that is what the new regulations say. That is just what your company chose to do-because it is simple, not because it is good for you or the government. So, blame your boss(es).
In our case, the company took the middle ground. We can no longer use our debit cards for OTCs. We have to file for reimbursement. As I understand it, the problem is that the IRS found that depending on random store clerks to correctly make decisions regarding tax laws didn’t work well. Some items have always been disallowed. The new regulations disallow a few more items and increase the review process to reduce “mistakes”. How those laws get implemented is partly up to the company. Sounds like yours took the easy way out.
