News & Events

IRS Issues Guidance Confirming OTC Rule Changes

by Liz Norton | Sep 07, 2010


IRS Issues Guidance Confirming OTC Rule Changes

SAN RAMON, Calif. – September 08, 2010–On Friday, September 3, 2010, the IRS issued its initial guidance with respect to the new rule included in the Affordable Care Act that requires a doctor’s prescription for the reimbursement of over-the-counter (OTC) drug and medicines from a tax-advantaged health care account. While the guidance offers little in the way of new information, it does confirm the generally accepted interpretation of how the change will be applied.

In summary, the guidance confirms the following:

  • Participants will still be able to use their tax advantaged health care accounts for purchases of ALL OTC drugs and medicines, as long as they have a doctor’s prescription.
  • The rule applies to all tax-advantaged health care accounts, including Flexible Spending Accounts (FSAs), Health Savings Accounts (HSAs), Health Reimbursement Arrangements (HRAs) and Archer Medical Savings Accounts (Archer MSAs).
  • The rule takes effect January 1, 2011 and applies to purchases on or after January 1, 2011, regardless of plan year. The only acceptable form of documentation for reimbursement for OTC drugs and medicines is a doctor’s prescription, as regulated by state law.
  • Insulin, medical devices (crutches, blood sugar monitors, etc.) and items such as bandages, contact lens solution, denture bond, etc. remain eligible and will not require a prescription.

The IRS has posted additional details, including a helpful FAQ, about the OTC rule change on its Affordable Care Act website and includes links to the following:

More details will follow in the next few weeks as the SIGIS Workgroups and Committees evaluate the impact to the SIGIS standards and best practices.