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Prescription requests may rise under new OTC drug payment provision

A health reform law requirement taking effect Jan. 1, 2011, forbids using flexible spending accounts and other tax-exempt funds to buy medication without a prescription.

By Doug Trapp — Posted Dec. 13, 2010

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New federal restrictions on tax-exempt purchases of over-the-counter medication could lead more patients to ask for prescriptions for common drugs.

A provision in the health reform law prohibits holders of flexible spending accounts, health reimbursement arrangements, health savings accounts and Archer medical savings accounts from using these tax-exempt funds to buy medication without a prescription. The law, which takes effect Jan. 1, 2011, exempts insulin and does not apply to medical devices and other nondrug items, such as crutches, eyeglasses and blood glucose test kits, according to the Internal Revenue Service.

Physicians could see more patients asking for prescriptions for common drugs, such as those to stop smoking and combat allergies and pain, said Roland Goertz, MD, president of the American Academy of Family Physicians. At the same time, the restriction could lead more patients to disclose to their physician the over-the-counter drugs they're taking, he said.

Another possible impact of the provision is that more patients could request prescription versions of over-the-counter analgesics and nonsteroidal anti-inflammatory drugs, said G. Caleb Alexander, MD, assistant professor of medicine in the department of general internal medicine, at the University of Chicago Pritzker School of Medicine.

Pharmacies rarely see prescriptions for over-the-counter drugs, said Kevin Nicholson, RPh, vice president for government affairs and public policy for the National Assn. of Chain Drug Stores. But "while it's not the norm, it's not unheard of."

NACDS spokeswoman Chrissy Kopple declined to speculate whether or not pharmacists at drugstores would see more prescriptions for OTC drugs. Depending on their policies, pharmacies could decide to fill prescriptions for this type of medication, Kopple said.

Pharmacists and drugstores are concerned that the new restriction could force them to adopt enforcement mechanisms. The law also increases penalties on distributions from these tax-exempt plans not used for medical expenses from 15% to 20%.

The IRS regulation prohibits debit cards linked to some of these tax-exempt accounts from being used to buy over-the-counter drugs. However, drugstore payment systems do not distinguish between prescription drug purchases and others. Drugstores may need up to two years to implement such payment systems, Nicholson said.

The accounts vary in their use and administration. Holders of health savings accounts, Archer medical savings accounts and flexible spending accounts set aside pre-tax dollars that can be used for qualifying medical expenses. However, FSA funds do not roll over into the next year. Health reimbursement arrangements allow employees to have eligible medical expenses reimbursed by employers.

Patients with prescriptions for OTC drugs still could buy them with funds from tax-deductible accounts -- but not without health plan verification, according to the IRS. Patients would buy the drugs with funds outside their tax-deductible accounts, then submit a copy of the prescription and the receipt to the health plan for confirmation. The receipt must include the customer's name, prescription number, the date and purchase amount.

Repealing the ban

A coalition representing pharmacies, pharmacists, makers of over-the-counter medicines and others is asking Congress to repeal the ban on using funds from FSAs, HSAs and other tax-exempt accounts to purchase OTC medicine, according to a Nov. 18 letter sent to the Republican and Democratic leaders of the House and Senate. The letter was signed by leaders of NACDS, the American Pharmacists Assn. and the National Community Pharmacists Assn., among others.

"These new rules inject consumer confusion and logistical burdens that disrupt efficient patient care at the exact time when patients are feeling their worst," said NACDS President and CEO Steven C. Anderson.

Kevin Schweers, spokesman for the National Community Pharmacists Assn., said the change will increase the cost of drugs for consumers who are already facing health insurance premium hikes.

"It seems misguided to effectively raise the price of medications that cost effectively meet acute needs, such as cold and allergy relief," he said.

The Allergy and Asthma Foundation of America said it hopes Congress will consider amending the law to exempt allergy medications. Up to 50 million Americans have allergies, said Angel Waldron, spokeswoman for the foundation.

"To be able to get pretax reimbursement was a good benefit for our patients," Waldron said. Asthma drugs already require prescriptions.

The health reform law limits annual spending in FSAs to $2,500 beginning in 2013, down from $5,000 today.

HSAs, FSAs and the other tax-exempt accounts are available to millions of Americans. For example, of the 69% of businesses providing health benefits in 2010, 18% offered flexible spending accounts, according to the 2010 Kaiser/HRET Survey of Employer Health Benefits.

The provision is expected to offset the cost of the health reform law by $5 billion over a decade by lowering the tax exemptions for spending on drugs, according to the Joint Committee on Taxation.

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ADDITIONAL INFORMATION

Send comments about restriction to IRS

The Internal Revenue Service is accepting comments through Dec. 27 about the restriction on using tax-exempt funds to buy medication without a prescription. Comments can be e-mailed with "Notice 2010-59" in the subject line and will be available to the public (link).

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