Health Care Reform

Over-the-Counter Drugs and Medicines

Effective January 1, 2011, Health FSA, HRA, and HSA reimbursements for over-the-counter (OTC) drugs and medicines are permitted only with a medical practitioner’s prescription.  This also applies to reimbursement from a group health plan. In addition, the IRS has imposed new restrictions on the use of debit cards to reimburse OTC drugs and medicines, which are described below.

Prescription Requirements

A prescription for an OTC medicine or drug must be legible and will be valid for one year from the date of issue. It must include the same information as required for a drug or medicine that is available by prescription only. This normally includes:

  • The name and address of the patient;
  • The name and quantity of the drug prescribed and directions for use;
  • The date of issue;
  • The name, address, and phone number of the prescriber, his or her license classification, and his or her federal registry number;
  • A description of the condition for which the drug is being prescribed; and
  • The signature of the medical practitioner issuing the order.

OTC Supplies and Other Reimbursable Expenses

The new rule does not apply to over-the-counter supplies for medical care such as crutches, bandages, hot/cold packs, sugar test kits, hearing aid batteries, etc. These items are still considered eligible expenses without a medical practitioner’s prescription. Similarly, the new rule does not apply to insulin or to eligible medical expenses that are not OTC drugs and medicines, such as prescription drugs, copayments, deductibles, prescription eyeglasses or contact lenses, orthodontia, etc.

Changes for Debit Cards

For Health FSA and HRA participants who elect to use a flex debit card, there are significant changes in how the card works for the purchase of OTC drugs and medicines. The IRS’s general rule is that Health FSA debit cards may not be used to purchase drugs or medicines over-the-counter. However, the IRS published an exception providing that if a pharmacist dispenses a drug or medicine “behind-the-counter” pursuant to a prescription (even if it’s a drug that may be purchased over-the-counter), the charge will be coded as a prescription drug, which the card should allow the customer to purchase. In other words, if the purchase “looks” to the debit card like it is an over-the-counter purchase, the card will deny the charge; if the purchase “looks” to the debit card like a prescription, the card should allow the charge. Alternatively, the participant can manually submit the receipt and medical practitioner’s prescription to be reimbursed from the Health FSA or HRA. Check out our tips below for using a debit card in connection with OTC drugs and medicines.

The IRS debit card changes apply to Health FSAs and HRAs; most debit cards for HSAs will still work for all over-the-counter purchases. If you offer an HSA with debit card to your employees, check with your HSA custodian for questions about whether restrictions may apply to purchases of OTC drugs and medicines.

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Over-the-Counter Drugs Hot Topics & FAQs

  • What’s an easy way to tell if an over-the-counter item requires a prescription?

    Answer: Take a look at the back of the box. If the packaging shows “Drug Facts”, it will need a prescription in order to be reimbursed.

  • Any tips on using a debit card to purchase an over-the-counter drug filled as a prescription?

    Answer: The following tips may be helpful if a participant plans to have a pharmacist fill a prescription for an OTC drug or medicine “behind the counter” so the debit card may be used:

    • The pharmacist may charge a dispensing fee – the participant may want to ask in advance how much the fee will be. It is possible the fee could be more than the tax savings realized by paying for the OTC drug on a pre-tax basis from a Health FSA. For example, if the participant would save $2 in taxes on a drug that could cost $10 over-the-counter, it may not be valuable to pay a $4 dispensing fee to use the debit card.
    • Participants should make a copy of the prescription before giving it to the pharmacist. If the participant chooses not to have future OTC drugs or medicines filled by the pharmacist, a copy of the prescription will be needed to manually submit reimbursement request vouchers.
    • Remember there is always the option of paying for the OTC drug or medicine out-of-pocket, then submitting a manual voucher to request reimbursement.
Effective January 1, 2011, in order to be reimbursed for over-the-counter (OTC) medicines and drugs, the participant will need a doctor's prescription for these items. The IRS also made changes to the debit card rules in connection with over-the-counter drugs.

American Fidelity Assurance Company does not provide tax or legal advice.

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