IRS Publishes New Health Care Reimbursement Guidance

September 3, 2010 (PLANSPONSOR.com) – The Internal Revenue Service (IRS) has issued some new guidance on provisions added by the Patient Protection and Affordable Care Act. 

The IRS said that Notice 2010-59 provides guidance on new section 106(f) of the Internal Revenue Code, added by section 9003 of the Affordable Care Act.  That section sets forth a new standard, effective January 1, 2011, for reimbursement of expenses for over-the-counter drugs from all workplace health plans, including:

• flexible spending arrangements (FSA),
• health reimbursement arrangements (HRA),
• Health Savings Accounts (HSA) and
• Archer Medical Savings Accounts (Archer MSA).

Section 106 is the section of the Internal Revenue Code that provides that the gross income of an employee does not include employer-provided coverage under an accident or health plan, while Section 105(b) generally provides that the gross income of an employee does not include amounts paid as reimbursements for medical care under an employer-provided accident or health plan.

New Sections

The new § 106(f), as added by the Affordable Care Act, provides that, for purposes of §§ 106 and 105, beginning after December 31, 2010, expenses incurred for a medicine or a drug shall be treated as a reimbursement for medical expenses only if such medicine or drug is a prescribed drug (determined without regard to whether such drug is available without a prescription) or is insulin. Thus, under new § 106(f), expenses incurred for medicines or drugs may be paid or reimbursed by an employer-provided plan, including a health FSA or HRA, only if:

1. the medicine or drug requires a prescription,
2. is available without a prescription (an over-the-counter medicine or drug) and the individual obtains a prescription, or
3. is insulin.