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Changes are coming to a health care account near you…


Open enrollment is just around the corner. If you are already using a Flexible Spending Account (FSA), Health Savings account (HSA, along with your High Deductible Health Plan), health reimbursement arrangements (HRAs) or Archer Medical Savings Accounts (Archer MSAs) there are some big changes coming your way. The changes will affect how you use your money and how much you should set aside for 2011. This post includes

  • Changes to the plan
  • List of medications that do not require prescriptions
  • List of medications that require prescription
  • List of medications that will require a prescription AND a letter of necessity
  • What you can do to prepare and use your money wisely

I am going to just say FSA from now on, but it applies to HSA, HRA and Archer MSA as well. If you are looking for the differences between Health Savings Account (HSA) vs Flexible Spending Accounts (FSA) vs Health Reimbursement Arrangement (HRA) check out the HSA vs FSA vs HRA post instead. This post deals with the changes to these account due to the recent health reform.

FSA / HSA Changes to the Plan (for 2011)

OTC requires Prescription : If you use your FSA to pay for over the counter medication (any cold medicine, allergies, motion sickness) then you are in for a rough ride with the new changes beginning January 1, 2011. Your over the counter (OTC) drug now requires a prescription to be reimbursed from your FSA. Talk about an oxymoron. There are a few exceptions to this (like insulin, contact lens solution) which I will describe below.

Know your documentationAccording to the IRS, you should be provide proof of purchase and proof of prescription. For example you can provide either

  1. Receipt from the pharmacy that clearly shows when the sale was made, how much was the charge and the prescription from your doctor.
  2. Receipt from the pharmacy that clearly shows the name of the customer (this should match the prescription), the data of the purchase, amount of the sale and the prescription (Rx) number.

What about grace periods? Not all companies provide grace period. Check your plan or ask your HR to check if you have any grace period. Some companies provide a grace period to use up all the money. In that case, you have to follow the new rule for your purchases after the first of Jan 2011. Even if the money comes from 2010 fund. Example : If your company provides 3 months grace period to use up your 2010 fund. You alloted a total of $1000 for 2010. You spent $700 in 2010 and you have $300 to spend in the first 3 months of 2011 (per your grace period). You don’t need a prescription for the $700 you spent in 2010, but even if you are purchasing the exact same drug, you will need a prescription to spend the $300 in 2011.

I have a debit card, how will that work? It shouldn’t work after Jan 15, 2011. According to the new rules, all the FSA/HSA administrator companies should change their system so that the debt cards cannot be used for purchasing over the counter drugs. As there is no way of verifying the prescription on the spot, you will have to buy them on your own money and then present the documentation mentioned about to request reimbursement of your money. A pain, but that is the new rule.

List of eligible medications that do not require a prescription

This change impacts only medication. This means crutches, band aid, condoms (Check this post for ways to spend your FSA/HSA money : FSA/HSA eligible expenses 2010) and other medical supplies that are covered by your plan will not require any extra documentation. Here is a sample of stuff that don’t require any prescription.

Adult diapers (e.g.Depends) Health monitors (e.g. blood pressure, cholesterol, HIV, thermometers)
Birth control products (e.g. prophylactics) Hearing aid batteries
Contact lens solution Heat wraps (e.g. ThermaCare)
Denture adhesives Heating pads, hot water bottles
Diabetic supplies (including insulin) Medicine dropper/spoon
Ear supplies (e.g. ear plugs) Motion sickness devices
First aid supplies (e.g. band-aids) Supports/braces (e.g. ankle, knee, wrist, therapeutic glove)

List of eligible medications that require prescription

Unfortunately a lot of medications, over the counter medications, now require a prescription. Some examples include -

 

Acne medications Lactose intolerance pills
Allergy and sinus medications (e.g. Benadryl, Claritin, Sudafed) Pain relievers (e.g. aspirin, Excedrin, Tylenol, Advil, Motrin)
Anti-fungal drugs (e.g. Lotramin AF) Motion sickness pills
Anti-itch and insect bite medications(e.g. Caladryl, Cortizone) Nasal sprays for congestion (e.g. Afrin)
Cold sore medications Pre-natal vitamins
Cough, cold & flu remedies Sleeping aids
Decongestants Suppositories
Diaper rash ointments Toothache relievers (e.g. Orajel)
First aid creams Wart remover medications
Gastrointestinal aids (antacid) Yeast infection creams (e.g. Monistat)

List of eligible medications that will require a prescription and a letter of necessity

There is no change in this category. Some medications always required an extra letter of necessity from the doctor, like the following.

Calcium supplements Hormone therapy
Fiber supplements Joint supplements
Foot insoles Nasal strips & snore relief
Herbal medicines Vaporizers/humidifiers
Homeopathic remedies Vitamins/minerals/supplements

 

Now you have to get a prescription too.

What can you do to prepare and use your money wisely

These FSA changes for 2011 will be enforced from January 1, 2011. You have a little more than 3 months to plan for it and prepare. Here are some tips on what you can do to follow these rules and still save money.

Stock up now : You can still buy OTC medications without a prescription until Dec 2010. So stock up things you might need.

Get a SINGLE script from your doctor : Imagine you have a cold and want to buy NyQuil. The price of the NyQuil is, lets say $5. To pay from your FSA, you have to get a prescription for it, which means you have to pay the co-pay for the doctor visit (if they cannot call-in the prescription). That will be $20. Why will someone spend $20 to save $5 (even if you are paying the co-pay with FSA, it is still your money, just pre-tax). I figure the doctors are also not going to be very pleased when everyone calls to get a prescription for all their allergies and cold. Anyway, to avoid all that – talk to you doctor and get a single prescription for the problems you had last year. I checked with my doctor and my FSA administrator, they can’t see why that won’t work. But even the FSA administrator is not very clear about what they should/shouldn’t be accepting. So if your FSA won’t take it, make sure you do the previous and next step.

Set aside the correct amount : A lot of people set aside a random amount without understanding what they are doing – just because people say FSA/HSA is full of awesomeness. Consider what your health care cost (out of pocket) was for the last year and how much you spent for over the counter drugs. Think whether you can get a prescription for these drugs for 2011 from your doctor, if not, subtract this amount from your health care cost. Set aside this amount. If you don’t empty your FSA account by the end of the year you will most likely lose all that money. If you cannot get a prescription for your OTC drugs, don’t set money aside for them in FSA.

The new rules do not prohibit using the FSA money for any legitimate expenses that are currently covered, but its a lot more inconvenient. But that should not stop anyone from taking advantage of these tax favored health accounts. Let us pre-plan and take advantage of it while it is still available.

{ 18 comments… read them below or add one }

Squirrelers

Agree completely on stocking up now, on certain OTC products that you will need. Check expiration dates, of course:)

I buy contact lens solution, which has been covered the past. If it’s not covered now, that’s $8 a month that’s not covered. Multiply by 12, you’re at $96. That’s just one example, and when you add up any other expenses, it can total a pretty decent amount that won’t get the benefit next year.

Also agree on setting the right amount from next year. I suggest a “zero-based” approach, building from the ground up.

Reply

Suba

@Squirrelers Luckily contact lens solution is something that doesn’t require prescription, so you should be fine. I don’t think it is a good idea to make things like contact lens solution and hearing aid batteries to be prescription based, but I am not the one making the rules :)

Reply

The Biz of Life

With all the rule changes from year to year, it is very difficult to budget the right amount to set aside. It would be helpful if the government would leave rules in place for several years instead of changing them each year.

Reply

Ken @ Spruce Up Your Finances

I have the flexible spending account at work and normally I put into account those over-the-counter drugs in the savings. Now, I may have to readjust the monthly contribution since we can no longer include a few OTC without the prescription.

Reply

alison

This is the dirty work of the pharmaceutical companies who, by the way, are also joined at the hip to the FDA. They want us to get sick. They don’t make money unless we do.

Reply

Madonna Robertson

Scenario… You have a prescription for aspirin. You buy the aspirin. To whom do you give the prescription?

Reply

Suba

@ Madonna To your FSA/HSA administrator.

Reply

Bob

Looks like a real pain for regular purchases. E.g., if you buy baby aspirin 12x a year, will this mean submitting 12 separate requests? Or saving up 12 receipts and doing at once? That was the benefit of a FSA Debit Card.

Or try to buy a Costco barrel of aspirin.

Think of how much doctors will be bugged. Especially if you call and they say “Just take some aspirin”. “Just write me a script”.

Reply

Suba

Bob, actually you can combine everything and submit just one reimbursement request. Yeah the doctors are going to hate this… writing a prescription for every single thing!

Reply

bo yo

Seems like the best way to effect change nowadays is to hurt big businesses bottom line…

I’m not sure that changes in the fsa rules would necessarily help pharm… if anything I would think it would hurt them( when speaking just about this fsa change) I would think the masses of people would be less likely treat OTC pills like candy when there will be so much more hassle(or costly) to get them with pretax dollars.

It’s my understanding that left over money in fsa accounts go back to the company you work for to theoretically offset the loss of the company funding the account at the beginning of the year for employees that leave (layoff or quit).

So in reality, it’s your employer that’s reaping the benefit of all this regulation. By taking away your ability to just go out and stock up on OTC meds at the end of the year it makes it that much more difficult to accurately guess what you should put into that account. So what most people will do is put less into their fsa accounts. so your employer effectively saving/making money on fsa accounts.

Reply

Suba

@Bo Yo I agree, but the employer might benefit from it for atmost 1 year. After that people will reduce the contribution and not having FSA, which means more taxes… I dont know if less amount in FSA means less fees for employer. Interesting point… have to check if that is the case.

Reply

Tristan

ya the new rules on flex spending accounts are the only downside to the health care reform… here is a funny joke I saw about the new flex spending account rules, http:// ponderingstuff .com/2011/01/08/health-care-reform

Reply

brad

your employer does not incure any ill effect by providing an fsa. your fsa is funded by payroll contributions from YOUR paycheck. it is a credit card that has set payments wether you use it all in the first or last month of the year the employee funds it not the employer. all the new rules are going to do is make the wait at your doctor or urgent care and e.r. longer because people are going to want a scrip for nyquil or advil . it’s another in a long list of backwards ideas coming out of some bureaucrat in washington because he or she thinks it makes sense as part of healthcare reform

Reply

Andy

The irony is that it costs me $30 to see my doctor to get a prescription for Tylenol which cost about $7. So even with the 30% tax savings, it does not make sense to try and claim OTC drugs. But most doctor’s are good about doing bulk prescriptions….still seems a lot of paperwork for no reason.

Reply

Smitter

So I have a question about these kinds of accounts and I can’t find the answer anywhere. If I put $50 per pay period into my account (that’s $1300 per year) and then use all of that $1300 by September and then quit my job, what happens? The account will be short by a few hundred dollars, since I will have claimed $1300 worth of expenses already but only contributed about 70-75% of that total through payroll deductions. When I leave my job, does my account need to be “sqared up”?

Reply

Suba

In FSA, You can use all your money the first month and if you quit your job, you don’t have to do anything. You don’t have to pay it back, the employer takes the hit. To answer your question, if you used everything by Sept and quit your job the next day, you are free to go. Nothing happens :)

Reply

Jill

No worries! You shouldn’t have to pay any of it back. My experience–my mom put $4,000 into her FSA a few years ago, and spent it all at the beginning of January on my LASIK surgery. My mom retired from that company in May of the same year. When she left, she wondered the same thing–and then found out that the employer is the one who has to foot the bill!

Reply

George Rome

Can someone send me a copy of a reciept from a prescription eye glass purchase & cover ther personal info, I am new to the FSA account & want to see what info has to be on the reciept when I submit it?

Reply

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