Transition Relief for Over-the-Counter Plan Amendments Expiring Soon
The Patient Protection and Affordable Care Act (“PPACA”) imposed new rules regarding the reimbursement of over-the-counter (“OTC”) drugs and medicines (other than insulin) under health flexible spending accounts (“health FSAs”) and health reimbursement arrangements (“HRAs”). Under the new rules, a participant must obtain a prescription for the OTC drug or medicine (other than insulin) for it to be reimbursable. See our Client Alert: https://www.hitesmanlaw.com/news_events/alert_101102.shtml for additional information regarding the new rules. If a health FSA or HRA includes OTC drugs and medicines (other than insulin) as eligible expenses, the plan must be amended to incorporate the new rules.
The new rules generally became effective January 1, 2011, with a 15-day non-enforcement period (through January 15th) for OTC drugs and medicines purchased with electronic payment cards. Plan amendments generally must be adopted prior to the effective date of new laws. However, the IRS has provided transition relief (found in IRS Notice 2010-59 http://www.irs.gov/pub/irs-drop/n-10-59.pdf) regarding plan amendments to incorporate the new OTC drug and medicine rules. Under this special transition relief, plan sponsors have until June 30, 2011, to amend their plans to incorporate the new rules. If the plan sponsor adopts an amendment before the expiration of this transition relief period, and the amendment is effective retroactively back to January 1, 2011, the plan will not be out of compliance with the requirements of the Internal Revenue Code.
Note: IRS Notice 2010-59 specifically addresses only amendments to health FSA plan documents. Nevertheless, the transition relief should be available with respect to HRAs as well.
In light of the foregoing, employers sponsoring a health FSA and/or an HRA should take the following actions as soon as possible:
- Review the governing plan documentation to determine whether it includes the new OTC drug and medicine rules; and
- If the new rules are not included in the governing plan documentation, amend the plan to include the rules. Such amendment may be accomplished by adopting either a stand-alone amendment or an amended and restated plan document. Such amendment must be adopted on or before June 30, 2011.
Please contact us if you need assistance preparing an amendment or if you have any questions regarding the new rules or your plan documentation.
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The information contained in this ALERT is intended for general information purposes only and does not constitute legal advice relative to a specific situation.