A New Tax Headache: Rxs Required for OTC Drugs

Q: How will the new rules regarding flexible spending accounts affect my practice?A: Physicians may find themselves facing another tax-related paperwork headache in the new year, as a result of changes to the rules regarding tax-advantaged flexible spending accounts (FSAs). Beginning Jan. 1, consumers will be required to get a prescription for commonly-used, over-the-counter drugs such as aspirin and cold medicines. So don’t be surprised if your patients start asking you for prescriptions for Tylenol, Prilosec, or Nyquil -- they will need it to qualify for their tax records.

An FSA works much like a 529 college-savings account. Money that a participant contributes to the accounts isn’t taxed upfront and withdrawals are also tax-free if the money is spent on qualifying healthcare items or services. Many who are covered by an FSA use the money to pay for medical procedures, such as cosmetic surgery, that aren’t covered by their basic health insurance. The money also can be used to cover deductibles and co-pays.

One of the most common ways to use FSA contributions, however, is on over-the-counter drugs. And since money in an FSA must be used before the end of the year, this use-it-or-lose-it feature often leads to an annual year-end drugstore shopping spree, as consumers snatch up aspirin, cold remedies, and other OTC drugs that can be paid for from their FSAs. In 2011, however, consumers who don’t get a prescription for these medications will not be allowed to take money out of an FSA to pay for them.

The IRS is expected to publish an official list of medications that will need a prescription next year on Dec. 15. In the meantime, according to a tentative list published on the FSAStore, a retail website that sells FSA-eligible products and services, aspirin and other pain relievers will need a prescription, along with several other OTC drugs, such as cold and flu remedies, cough drops, and sleep aids. Other items, including contact lenses and cleaners, OTC eyeglasses, hearing aids, and pregnancy tests, will not require a prescription.

Consumer advocates are counseling FSA participants to stock up now on items that will need a prescription next year, and to push uninsured medical visits into next year. They also also advising patients to ask their doctors if they would be willing to write a prescription for an OTC drug.

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