Health Insurance Info for Colorado

news & commentary on health insurance and benefits

Health reform at-a-glance: spending accounts

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Health care reform will change how employees may use their health care flexible spending accounts, health reimbursement arrangements, health savings accounts, and Archer medical savings accounts, starting on January 1, 2011.

The IRS issued Notice 2010-59 which provides information about these changes. Two important changes are an increased penalty for nonqualified HSA and MSA distributions, up from 10% to 20%, and that prescriptions are now required for over-the-counter (OTC) drugs, with the exception of insulin. Flexible spending account holders who have valid prescriptions for OTC items must pay up front and then provide proof when they request reimbursement.

For OTC items that aren’t drugs, such as bandages, blood sugar testing supplies, catheters and so on, members can continue to use spending account funds to pay for these expenses.

TIP: If an employer has a cafeteria plan allows members to use spending account funds for OTCs, the plan will need to be amended. There is a transition period allowed for this change – an amendment made before June 30, 2011 may be made retroactively for expenses incurred on or after January 1, 2011. Contact your third party administrator (TPA) to get this accomplished.

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