IRS Issues Important New Guidance on Health FSA and HRA Debit Cards

Today the IRS issued new guidance allowing the continued use of health FSA and HRA debit cards for the purchase of prescribed over-the-counter (OTC) medicines and drugs. This new guidance modifies prior guidance, discussed here, which generally prohibited the use of health FSA and HRA debit cards to purchase OTC medicines or drugs (except insulin), even if the medicine or drug was obtained with a prescription. This relief should come as welcome news to participants and employers alike.

According to the guidance, the use of the debit card must comply with procedures reflecting those currently followed by pharmacies when selling prescribed medicines or drugs. The procedures include requirements that the prescription be presented to the pharmacy or vendor that dispenses the medication and that proper records be retained. In addition to the guidance, the IRS posted answers to frequently asked questions on this topic.

As discussed in a prior post, the Affordable Care Act amended the Internal Revenue Code to provide that expenses incurred for over-the-counter medicines and drugs may only be reimbursed from health FSA, HRA, HSA, and Archer MSA accounts if the medicine or drug is obtained by prescription or is insulin.