IRS Permits Reimbursement of Over-the-Counter Drugs Under Flexible Spending Accounts

The Internal Revenue Service recently issued a Revenue Ruling (2003-102) of great importance for companies and organizations that currently have or are considering the addition of a health care Flexible Spending Arrangement (FSA) option in their employee benefits portfolio.  FSAs allow participants to contribute pre-tax funds into an account which can be utilized to pay for medical costs, such as vision and dental care, which are not covered under other group health plans.     

One of the more utilized benefits under an FSA is the reimbursement of prescription drug costs.  However in Revenue Ruling 2003-102, the IRS announced that over-the-counter medications such as antacids, pain relievers, allergy medication, and cold medication acquired without a doctor’s prescription for the personal use of the participant, his or her spouse, or dependent may also now be reimbursable under FSAs.  The ruling further explained that the claims would have to be properly substantiated.  Dietary supplements such as vitamins obtained without a physician’s prescription to maintain the “general health” of the participant, their spouse, or dependent will still not be reimbursable.

As most companies will begin their employee benefits open enrollment for 2004 in the coming months, it is advisable that they thoroughly review and consider modifying their plan documents and open enrollment communication materials to reflect the recent changes.  Our Employee Benefits group can assist with any questions or concerns you may have about these recent changes in the law.