Medical Flexible Spending Account Questions & Answers

Over-the-Counter Medicines and Drugs

Q. How does the new IRS ruling regarding Over-the-Counter (OTC) drugs impact my medical flexible spending account (FSA)?

A. With only a few exceptions, previously a medical FSA could reimburse medicines and drugs only if they were available with a prescription. With the new IRS ruling, and if certain requirements are met, a medical FSA can reimburse medicines and drugs that are available without a prescription. (Please note: OTC medicines and drugs are still not deductible for federal income tax purposes.)

Q. When is the change effective?

A. We will accept claims for Over-the-Counter medicines and drugs purchased on or after January 1, 2008.

Q. What documentation is needed to submit for reimbursement of eligible OTC drugs?

A. You must submit an itemized receipt along with your completed Claim for Reimbursement form showing the following:

· Name of provider (i.e. CVS, Eckerd, Price Chopper, Rite Aid)

· Date of purchase

· Description of the item purchased

· Dollar amount paid

Acceptable receipts must have this information pre-printed by the provider. All items purchased must be for use by you, your spouse or your eligible dependent(s).

Q. What requirements must be met for an OTC drug to be eligible for reimbursement?

A. The following requirements must be met for eligible reimbursement:

· The item must be a medicine or drug used for the “diagnosis, care, mitigation, treatment or prevention of disease, or the purpose of affecting any structure or function of the body”

· The item must not be used for general health or cosmetic purposes

· The item must be used by the medical FSA participant, their spouse or eligible dependent(s)

· The expense must be for medical care during the current Plan Year

Q. What OTC items are not eligible for reimbursement?

A. Items are not eligible for reimbursement if they are normally used for general health (i.e. toothpaste, regular or electronic toothbrushes, mouthwash, lotion, shampoo) or are cosmetic in nature (i.e. hair loss treatments, teeth bleaching/whitening products).

Q. Some OTC drugs can be used for medical purposes or for general health/cosmetic purposes. Are these dual-purpose items reimbursable?

A. Any claim for a dual-purpose item must be accompanied by additional supporting documentation from a medical practitioner. Documentation must:

· Be on the medical practitioner’s letterhead or prescription form

· Be dated within the current Plan Year

· Include the specific diagnosis (the specific medical condition being treated)

· Indicate that the item being purchased will directly impact the specific medical condition and indicate the length of time the OTC is to be used

· Include the medical practitioner’s signature

A new letter from the medical practitioner is required each Plan Year.

Q. Can large quantities of OTC medicines or drugs be purchased?

A. Reasonable quantities of OTC medicines and drugs are reimbursable if purchased for either existing or imminent medical conditions. If large quantities are necessary for the treatment of an existing condition, documentation from a medical practitioner is required.

Q. How do I get additional information?

A. The attached summary provides additional information on the reimbursement status of OTC medicines and drugs. For questions regarding your flexible spending account program, please contact Carrie-Anne Goyer of Rose and Kiernan’s Employee Benefits Management Group at (518) 244-4243 or by e-mail at cgoyer@rkinsurance.com.