Employers have one more week to make sure they’re in compliance with the new restrictions on health reimbursement accounts (HRAs) and flexible spending accounts (FSAs).
Employer-sponsored health plans are no longer able to use HRA or FSA funds to reimburse employee expenses for over-the-counter meds — unless those meds are insulin, or prescribed by a doctor.
Those rules took effect Jan. 1, 2011. But the feds granted sponsors a full six months to amend their plans.
That means sponsors have until June 30, 2011 to get their plans in compliance.
Sponsors should apply the new rules retroactively to expenses for non-prescribed meds incurred on or after Jan. 1, 2011. This date applies regardless of an arrangement’s plan year.
Internal Revenue Service (IRS) regulations state that any failure to satisfy these requirements results in all employee contributions to HSAs or FSAs becoming taxable.
HSAs and Archer MSAs
Distributions from a health savings account (HSA) or Archer medical saving account (Archer MSA) are subject to the same new requirements, with one major difference.
Reimbursements for purchases of non-prescribed meds under HSA and MSA plans are considered “nonqualified distributions,” and, in addition to becoming taxable, are also subject to a 20% penalty tax.
For more information the new rules, click here to see our breakdown of the IRS’ guidance.
