New Rules Coming for Payments Out of Health Savings Accounts

Under the new health care law, consumers using workplace pre-tax health savings accounts will soon need a doctor's note to pay for Tylenol and an estimated 15,000 other over-the-counter drugs.

Starting Jan. 1, employees who use flexible spending accounts (FSAs), health saving accounts (HSAs), or health reimbursement arrangements (HRAs) to pay for common medications such as pain relievers, cold medicines, antacids and allergy medications will need prescriptions. The new rules don't apply to insulin.

The new rules will also prohibit the use of FSA or HRA debit cards provided by administrative plans for over-the-counter purchases, because the IRS says there's no way to prove the drugs were prescribed.

The IRS says any money removed from HSA accounts to pay for medical expenses bought without a prescription will be included as taxable income and subject to an additional tax of 20 percent.

Robert Zirkelbach, a spokesman for America's Health Insurance Plans, the industry lobby that voiced support for the overhaul but has been accused by some of the law's proponents of trying to undermine it, said the law creates "unintended consequences."

"It creates unnecessary hassles for consumers and provides the wrong kind of incentives," Zirkelbach said, adding that the changes could make it more difficult for consumers to get medicines they need at costs they can afford.

"This change could have the unintended consequence of increasing health care costs," he said. It might provide an incentive for consumers to go back on more expensive medications when over-the-counter medicine works just fine."

More than 10 million consumers use HSAs, according to a survey done in January by AHIP. That's up from 8 million in 2009 and 6.1 million in 2008.

According to an analysis by benefits administrator Aon Hewitt of more than 220 employers covering more than 6 million workers, 20 percent of employees, or 1.2 million, contributed to an FSA in 2010. Of those workers, the average annual contribution is $1,441.

FSAs and HSAs allow workers to reduce their taxable income to pay for qualified health care or child care expenses. Anyone with a high-deductible medical insurance plan can obtain an HSA. The IRS defined a high-deductible plan in 2010 as $1,200 a year for individuals and $2,400 for families.

FSAs, which were first authorized by Congress in 1978, are only available through employers who offer the plans. But FSAs face another new rule under the Affordable Care Act -- a limit on the pre-tax contributions to $2,500, starting Jan. 1, 2013. There is currently no limit on how much an employee can contribute to FSAs, although employers can impose one.

Lawmakers imposed the cap to help pay for provisions that will expand coverage starting in 2014. The cap is expected to raise $13 billion for other government-provided health care services offered between 2013 and 2019.