IRS Rev. Rul. 2003-1002 (Sept. 3, 2003) authorized the reimbursement of over-the-counter (OTC) drugs by Health FSAs, HRAs, and other employer-provided health plans. (However, OTC drugs are still not deductible on an individual's federal income tax form.)

The Press Release (IR-2003-108) announcing this ruling cited that one reason for this ruling resulted from the number of prescription drugs that have become OTC drugs. Although the OTC drugs were often cheaper, the participants wanted to stay with the prescription drugs because the co-pay was often cheaper than the OTC drug cost.

The question now is what OTC drugs are eligible. The Ruling specifically mentions the eligibility of "antacid, allergy medicine, pain reliever, and cold medicine", and excludes dietary supplements (such as vitamins) which are merely beneficial to the person's health. Other than that, many questions are unanswered.

Until further guidance, it seems that OTC medicines or drugs are eligible if they meet the following three requirements:

1. The medicine or drugs must be "generally accepted as falling within the category of medicine or drugs",
   
2. The medicine or drugs must be "for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body".
   
3. The medicine or drugs cannot include treatment for cosmetic uses.

This is just a brief overview of the new ruling. More details can be found in the EBIA Cafeteria Plans manual.

In This Issue

IRS Updates HSA Regulations
DataPath's Solutions for HSAs
DataPath's 2004 Annual Conference
DataPath's Growing!!!
What is Automatic Adjudication?
OTC Medicine Gain Eligibility under FSAs