CHPA: OTC medicines should remain eligible expenses under FSA

WASHINGTON Congress is looking into possibly removing over-the-counter medicine reimbursement from flexible spending accounts, according to a U.S. Senate Finance Committee report released last month, if not eliminating FSAs altogether.

In the May 20 report, the Committee wrote around not including OTCs as eligible expenses under FSA: “Under this option, with respect to medicines, the definition of medical expense for purposes of employer plans (health reimbursement arrangements and health flexible spending arrangements) and health savings accounts could be conformed to the definition for purposes of the itemized deduction for medical expenses. Thus, for example, under the proposal, the cost of nonprescription medicines would not be reimbursed through a flexible spending arrangement.”

The suggestions are being made as one possible way to help raise the revenue that will supplement the expected costs associated with healthcare reform. Reversing the Internal Revenue Services’ decision to include OTC medicines as eligible expenses under FSAs, or eliminating the FSA program entirely, effectively makes those medicinal purchases taxable again.

In response to the report, CHPA sent a letter May 26 to U.S. Senate Finance Committee Chair Max Baucus, D-Mont., urging the committee to not consider eliminating FSAs and to preserve the current gross income exclusions for reimbursements for OTC medicines, the association announced in its e-newsletter Friday.

“Rather than limit these important tools for making health care more affordable, they should be encouraged and expanded,” CHPA wrote in its letter. “OTCs represent more than $20 billion in annual health care spending that is paid directly by consumers, not covered by health insurance. Reducing, or even eliminating, current support for consumer health care spending is bad policy both because of the additional fiscal burden it would impose on consumers and because it would discourage consumers from utilizing important medicines for prevention, treatment and symptomatic relief.”

According to CHPA, the Senate committee has not indicated when it will take up consideration of proposals to finance healthcare reform. Any committee action would be followed by action by the full Senate. The U.S. House of Representatives also would have to agree to the provisions before they could be sent to President Barack Obama. The president has indicated that he wants to sign healthcare reform legislation before the end of the year.