How health care spending accounts are changing
by Angie Hicks, founder of Angie's List
This year, it's more important than ever to have an established, communicative relationship with your primary care doctor.
Effective Jan. 1, anyone using a Flexible Spending Account, Health Savings Account or Health Reimbursement Account to purchase any over-the-counter medicines, except for insulin, will first need a doctor's prescription.
This is a big change in federal tax law, as consumers with health care spending accounts in the past could be reimbursed for these purchases without a doctor's authorization.
Unlike money in HSAs and HRAs that carry over from one year to the next, most FSAs require consumers to use the funds within a designated 12-month period. Money unspent in the FSA account is lost. Because no one wants to give money away, many FSA consumers check their balance shortly before the period ends and go on a shopping spree to stock up on ointments, cough syrup and pain relievers they may need in the future.
But those days are over. This year, you'll need a prescription from your doctor for those over-the-counter, or OTC, drugs. It's more important than ever for FSA users to review their health spending habits and strategically estimate the year's medical needs so they can designate the right amount into their accounts before the next open enrollment session.
FSA and HRA holders are now required to submit receipts showing the prescription number and payment information for any OTC medications to their plan administrator. Those with HSAs aren't required to submit documentation, as HSAs are instead handled between the cardholder and the IRS.
However, it is the holder's responsibility to have that documentation ready if they're audited. If found to use HSA dollars for ineligible products, including OTC medicines without a prescription, the amount is treated as taxable income and will be taxed at 20 percent.
To avoid spending money on co-pays and doctors visits every time you want to purchase an OTC medicine, talk to your doctor ahead of time about your needs. He or she will likely be more inclined to work with you on this if you've already established a good relationship.
Have a list of what you generally buy so you can get everything you need prescribed in one visit. Another idea is to ask about virtual visits that allow you to e-mail your requests in and avoid an office call altogether. Virtual visits are convenient, and can cost less than an in-person visit.
For those who must use their funds by the end of the year - and can't, or don't want to bother with getting prescriptions filled - there are other medical items you can purchase with your health care spending account that you might not ordinarily think of, like glasses and contacts, bandages, braces and supports, ice packs, thermometers, and personal medical supplies.
You can use your allocated health dollars to join a weight loss program if it's for treatment of a specific disease, visit a chiropractor or see an acupuncturist. Those with diagnosed hearing loss can purchase qualifying specialty televisions and telephones.
A health care spending account can even pay to reconfigure an automobile to accommodate a disability, or to modify your home to accommodate a medical condition. It can also pay for the cost of removing lead-based paints from your home.
Visit www.irs.gov for a complete list of qualifying and non-qualifying purchases, or call your plan administrator or human resources specialist to be doubly sure you're following the rules.