The Internal Revenue Service has issued guidance on the purchases of over-the-counter medicines and drugs with flexible spending arrangements and health savings accounts next year in light of the changes in the health care reform bill.

The Affordable Care Act, enacted in March, established a new uniform standard that, effective Jan. 1, 2011, applies to FSAs and health reimbursement arrangements.  Under the new standard, the cost of an over-the-counter medicine or drug cannot be reimbursed from the account unless a prescription is obtained.

The change does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eye glasses, contact lenses, co-pays and deductibles.  The new standard applies only to purchases made on or after Jan. 1, 2011, so claims for medicines or drugs purchased without a prescription in 2010 can still be reimbursed in 2011, if allowed by the employer’s plan.

A similar rule goes into effect on Jan. 1, 2011 for health savings accounts and Archer medical savings accounts.

Employers and employees should take these changes into account as they make health benefit decisions for 2011. 

For details on current rules, see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans.

Updates on this and other health care reform provisions can be found on the Affordable Care Act page on IRS.gov. Notice 2010-59 and Revenue Ruling 2010-23, posted Friday, further explains this change.