One of the many changes brought forth under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) includes allowing pre-tax reimbursement of over-the-counter (“OTC”) medications effective January 1, 2020.
Specifically, the CARES Act amended Internal Revenue Code (the “Code”) sections 223(d) and 106(f) to remove the restriction that reimbursable medications are limited to prescribed drugs and insulin. Additionally, the CARES Act provides that expenses incurred for menstrual care products (as defined in Code section 223(d)(2)(D)) shall be treated as incurred for medical care. Affected reimbursement accounts include health flexible spending accounts (“health FSAs”), health savings accounts (“HSAs”), and health reimbursement accounts (“HRAs”).
This marks another change in course as to how to handle OTC medications. While OTC drugs were previously allowed under the Code, beginning January 1, 2011, the Affordable Care Act limited reimbursable medications to prescriptions and insulin. The CARES Act once again changes that, and while many of the CARES Act provisions include sunset dates, there is no expiration date for OTC reimbursements. With respect to HSAs, this change is effective for amounts paid after December 31, 2019. For health FSAs and HRAs, it is effective for expenses incurred after December 31, 2019.
Most health FSA and HRA plan documents specifically restrict reimbursement to prescription drugs and medications, including insulin. Therefore, if an employer chooses to allow reimbursements of OTC and menstrual care products from health FSAs and HRAs, plan amendments will most likely be required. HSAs are generally not employer sponsored products and, as such, would require no amendments.
While these are permissive changes, employers wanting to share some positive news to employees may want to allow them. Employee communication, as always, is of paramount importance, especially summaries of material modifications for ERISA plans.
This alert serves as a general summary, and does not constitute legal guidance. Please contact us with any specific questions.
We have created a response team to the rapidly changing COVID-19 situation and the law and guidance that follows, so we will continue to post any new developments. You can view our COVID-19 Response Page and additional resources by following the link here. In the meantime, if you have any questions, please contact your Fraser Trebilcock attorney.
Elizabeth H. Latchana specializes in employee health and welfare benefits. Recognized for her outstanding legal work, in both 2019 and 2015, Beth was selected as “Lawyer of the Year” in Lansing for Employee Benefits (ERISA) Law by Best Lawyers, and in 2017 as one of the Top 30 “Women in the Law” by Michigan Lawyers Weekly. Contact her for more information on this reminder or other matters at 517.377.0826 or firstname.lastname@example.org.