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CCH® BENEFITS — 04/26/10

April 26, 2010: Health Reform 2010: Health Accounts Limits For Over-The-Counter Medicines

from Spencer’s Benefits Reports: For the next few weeks, Spencer’s Benefits Reports will highlight specific provisions in the new health reform law which affect employer-sponsored plans.

Sec. 9003 of the Affordable Care Act concerns limitations on distributions from health accounts for over-the-counter medications.

The definition of qualified medical expenses, for purposes of reimbursements from health flexible spending arrangements (health FSAs) or health reimbursement arrangements (HRAs), and distributions from health savings accounts (HSAs) or Archer medical savings accounts (Archer MSAs), has been modified to include amounts paid for medicine or a drug only if such medicine or drug is a prescribed drug (determined without regard to whether such drug is available without a prescription) or is insulin.

Therefore, reimbursements for over-the-counter medicines through a health FSA, HRA, or other employer-provided accident or health plan may not be excluded from the employee’s gross income. Also, distributions from an HSA or Archer MSA to pay for over-the-counter medicines may not be excluded from the employee’s gross income and will be subject to additional penalty. This modification conforms to the definition for purposes of the itemized deductions for medical expenses.

State Tax Consequences. The exclusion of over-the-counter medicines and drugs from qualified medical expenses for purposes of the rules on HSAs, Archer MSAs, health FSAs, and HRAs will not affect those states, like California and Alabama, that do not recognize HSAs. Some states, such as Pennsylvania, that refer to qualified medical expenses under federal law, will be affected by this change unless/until the state updates its code conformity date.

Effective date. This provision is effective with respect to tax years beginning after Dec. 31, 2010.

CCH Law, Explanation And Analysis Of Health Reform Act Available

CCH’s Law, Explanation and Analysis of the Patient Protection and Affordable Care Act provides the most comprehensive and practical guidance available to professionals needing to make sense of this historic legislation. CCH editorial staff, together with leading experts, provide clear and practical guidance on the many new areas of compliance in the law, so professionals can quickly understand, comply with new requirements, and plan for the future. The book is available for $149.

For more information or to order, please call (800) 248-3248 or click http://www.health.cch.com/health-reform/. Discounts are available for multiple copies.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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