Flexible Spending Account Funds May Be Used for Over-the-Counter Medication, IRS Says
Employees can use the pretax funds they set aside in flexible spending accounts to pay for some over-the-counter medications, the Internal Revenue Service and Treasury Department said yesterday, the AP/Las Vegas Sun reports (Dalrymple, AP/Las Vegas Sun, 9/3). The clarification states that employees can use their FSAs to pay for medications such as pain relievers, allergy treatments, antacids and cold medicines, the Washington Post reports. However, cosmetics or dietary supplements that contribute to health but are not medications may not be paid for out of FSAs, according to the IRS and Treasury Department. The IRS also said that individuals may not itemize OTC drugs as tax deductions (Crenshaw, Washington Post, 9/4). Even though the clarification allows FSAs to be used to pay for OTC medications, workers' employers must also allow FSAs to be used in that way, the San Francisco Chronicle reports. The rule clarification leaves some "gray areas" for products falling along the border of a medication or a cosmetic, according to the Chronicle. Medicated acne creams will be considered medical expenses under the new rule, Treasury spokesperson Tara Bradshaw said (Pender, San Francisco Chronicle, 9/4).
Treasury Secretary John Snow said the ruling will "hel[p] people meet their health care costs" in light of the fact that "many prescription drugs have moved to the over-the-counter market" and then generally are not covered by insurance (Treasury Department release, 9/3). Karen Frost, a benefits consultant with Hewitt Associates, said the new rule -- combined with an earlier decision to allow FSA users to use debit cards to make health care purchases -- will increase the use of the pretax accounts (Washington Post, 9/4). Currently, about 74% of employers with more than 500 employees offer FSA plans, but only about 20% of eligible employees participate, according to Paul Fronstin, director of health research and education programs at the Employee Benefit Research Institute (San Francisco Chronicle, 9/4).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.