Flexible spending arrangements (FSAs) and health savings accounts (HSAs) are valuable programs offered by many employers to help consumers save money by planning for anticipated medical expenses. These accounts work by allowing employees to put aside pre-tax dollars in order to pay for health-related items throughout the year. Since 2003, most over-the-counter (OTC) medicines have been eligible for reimbursement under FSAs and HSAs. However, the Patient Protection and Affordable Care Act of 2010, signed into law March 23, removes OTC medicine eligibility from FSAs, HSAs, and other similar accounts unless the medicine is prescribed. On December 23, the Internal Revenue Service issued a guidance explaining the 2011 changes to FSAs and HSAs. These changes went into effect January 1, 2011.
On February 10, The Patients’ Freedom to Choose Act was introduced by Senator Kay Bailey Hutchison (R-Tex.) and Representative Erik Paulsen (R-Minn.) which would repeal the requirement enacted into law as part of the Patient Protection and Affordable Care Act of 2010 that requires consumers to obtain a prescription in order to utilize their FSAs and HSAs to purchase OTC medications. . In June 2011, Rep. Paulsen announced he had gained 100 supporters for his bill. CHPA is pleased to lend its support for these companion bills (H.R. 605/S. 312).
On May 10, the Consumer Healthcare Products Association (CHPA) and other members of the Health Choices Coalition sent a letter to members of the U.S. Senate and a letter to members of the U.S. House of Representatives urging repeal of the requirement that prevents consumers from using their FSAs to purchase OTC medicines without first getting a doctor’s prescription. The Health Choices Coalition represents physicians, consumers, retailers, manufacturers, pharmacies, pharmacists, patients, pharmacy benefit managers, small businesses, and employers in an effort to stop the unintended consequences resulting from the restrictions placed on tax-preferred accounts reimbursing for OTC medications without a doctor’s prescription.
On May 25, CHPA President and CEO Scott Melville sent letters to U.S. Senator Orrin G. Hatch (R-Utah) and U.S. Representative Erik Paulsen (R-Minn.) thanking them for including a provision on repealing the OTC restriction in FSAs within their recently introduced legislation (Hatch, S.1098; Paulsen, HR2010). The "Family and Retirement Health Investment Act of 2011" would expand the benefits of tax-preferred accounts, like FSAs and HSAs, and includes a repeal of the provision of the Patient Protection and Affordable Care Act of 2010 (PPACA, P.L. 111-148/P.L. 111-152) that prevents consumers from using their FSAs and HSAs to purchase OTC medicines without first getting a doctor's prescription.
Additionally, on November 18, 2010, a broad coalition that represents 39,000 pharmacies, 27,000 retail food stores, 62,000 pharmacists, and the makers of OTC medicines sent a letter calling on the U.S. Congress to repeal the requirement that prevents consumers from using their flexible spending arrangements to purchase OTC medicines without a prescription. The letter was signed by the Consumer Healthcare Products Association (CHPA), the National Association of Chain Drug Stores (NACDS), the National Grocers Association, the Food Marketing Institute, the American Pharmacists Association, and the National Community Pharmacists Association.
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State Sales Tax Exemptions
OTC medicines should be exempt from sales tax because they are a basic necessity and play a valuable role in maintaining affordable healthcare. While 42 of the 44 states with a sales tax currently exempt prescription drugs from sales tax, only 11 states exempt OTC medicines. CHPA is an active advocate for expanding the roster of states that recognize the value of OTC medicines through a sales tax exemption.