From the February 2011 issue of Benefits Selling Magazine • Subscribe!

FSA changes go into effect

Although many fought hard for repeal, the Jan. 1 effective date for new rules on medical savings plans quickly passed with little change to how and when the reform law would be implemented.

Grassroots organization Save Flexible Spending Plans was one of several groups that pushed for a repeal of the restriction on over-the-counter medications that now need a prescription to be purchased through an FSA, HSA or similar account.

Retailers and pharmacies resonated the opposition, and asked Congress to at least push back the law's date, so consumers would have time to digest it and systems could be updated - after Jan. 15, customers no longer would be able to purchase OTC drugs with an account debit card, and would have to front the money and try later for reimbursement. They could still use that card for other eligible medical expenses such as first-aid supplies.

By late December - a week before the law took effect - the IRS backtracked on its debit card provision. Consumers with an FSA or HRA can buy OTC medications using their card, but they'll need to present a prescription at the pharmacy, or make it available to a Web-based or mail-order vendor.

Those with HSA or MSA accounts who spend money inappropriately will not only owe taxes on the purchase, but will get hit with a 20 percent penalty.

According to FSAstore.com, there are still close to 30,000 products that remain FSA-eligible. The next major reform measure to hit flexible savings accounts will happen in 2013, when contributions will be capped at $2,500.

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