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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.

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