Industry Opposes FSA Changes

ARLINGTON, Va. The Food Marketing Institute and the National Grocers Association are seeking a repeal or delay of changes to flexible spending accounts and health savings accounts that would prevent consumers from using FSA funding to purchase certain over-the-counter medicines without a prescription. The changes are slated to take effect on Jan. 1, 2011, as part of the new health care law. FSAs are

ARLINGTON, Va. — The Food Marketing Institute and the National Grocers Association are seeking a repeal or delay of changes to flexible spending accounts and health savings accounts that would prevent consumers from using FSA funding to purchase certain over-the-counter medicines without a prescription.

The changes are slated to take effect on Jan. 1, 2011, as part of the new health care law. FSAs are pretax dollars that employers set aside for employees for their out-of-pocket health care costs. The new law allows FSA reimbursement of certain OTC medications, including pain relievers, gastrointestinal aids, cough and cold and allergy, and sinus medications, among others, only with a doctor's prescription.

The changes to the law, which were drafted by the Internal Revenue Service, are said to help finance health care reform. The Joint Committee on Taxation, a nonpartisan committee that advises Congress on tax policy, estimates the removal of OTC products from FSAs will add $5 billion in revenue by 2019.

But some view the changes as more costly to consumers. It will not be as convenient, some say, for consumers to claim funds still left over in their FSAs at the end of the year. FSAs operate on a “use it or lose it” basis.

The new law also prohibits consumers from using their health care debit cards to purchase certain OTCs even with a prescription. Consumers will be required to pay for these medications in cash and then file for reimbursements.

“The supermarket industry invested considerable resources into developing a system to make it convenient for our customers to use FSA debit cards for OTC medications. Removing cough and cold medicines and other OTC products from the list of eligible non-prescription items in the FSA plan will certainly put an additional tax on our customers,” said Leslie G. Sarasin, president and chief executive officer, FMI, in a prepared statement.

“Independent retailers have invested considerable capital in technology to accept FSA funds from their customers as an important payment option. This law effectively blocks them from using this option and should be repealed,” said Peter J. Larkin, NGA president and CEO, in a press statement.

About 35 million people use FSAs for their health care needs. OTCs account for less than 10% of FSA spending, according to benefit analysts.