Flex plans to become a little more complicated

SAN FRANCISCO — It’s soon going to be harder to have purchases of over-the-counter medicines reimbursed by your flexible-spending account.

Workers still deciding their 2011 health benefits may want to factor new flexible-spending rules into their calculations.

Routine drugs such as aspirin, allergy pills, nicotine patches and heartburn medication are about to become pricier or at least more cumbersome purchases for those who count on their pre-tax accounts to defray the cost.

Flexible-spending accounts allow workers to sock away part of their income — typically up to $5,000 but it varies by company — to pay for qualified out-of-pocket medical expenses with pre-tax dollars.

Starting Jan. 1, consumers who want account reimbursement will need to have a doctor’s prescription when they purchase a drug or medicine that’s sold over the counter. The big exception is insulin, which the Internal Revenue Service says won’t require a prescription for reimbursement.

Other items such as eyeglasses, contact-lens solution, bandages, dental care and test kits are unaffected by the new prescription requirement.

People already are accustomed to providing receipts for their over-the-counter medications, but adding a prescription requirement may make it too inconvenient for some to continue, said Sara Taylor, health and welfare leader for Aon Hewitt, a Lincolnshire, Ill.-based benefits firm that administers flexible-spending plans.

Consumers estimating how much money they should allocate to their 2011 plans need to ask themselves how much they’re willing to do to be reimbursed for over-the-counter drugs, she said.

“It’s about hassle, and it’s about value,” Taylor said. “How much is my time and effort worth compared to the tax savings?”

The new rules likely won’t have a big impact on consumer behavior because most people who have the accounts use them for prescription drugs instead of over-the-counter ones, said Tom Billet, senior consultant for Towers Watson, a human-resources consulting firm in Stamford, Conn.

People whose doctors want them to come in for an office visit before giving them a prescription may find the out-of-pocket costs of paying the coinsurance or co-payment outweigh the potential savings, he said.

“In a lot of cases, the economics of this aren’t going to work very well,” Billet said.

Many people need to re-evaluate how they use the accounts, Taylor said. “I think people who use it know the expenses are coming, and why pay the taxes on it if you don’t have to?”

The cost-benefit calculation is likely to be different depending on the over-the-counter drug in question. Aspirin and other generic medicines, for example, tend to be much cheaper than brand names such as Prilosec, a heartburn remedy that many drugstores keep behind lock and key.

Another variable to consider is what kind of relationship you have with your doctor. If you want medicine to help you stop smoking, for example, your physician may be willing to send you a prescription without an office visit. Other doctors may insist on seeing you regardless of what over-the-counter medicine you want flexible-spending reimbursement for, in part because that’s how they get paid.

The new rules may put doctors in an awkward position if they don’t want to prescribe something that they believe could be ineffective or unsafe for the patient, said Dr. Glen Stream, president-elect of the American Academy of Family Physicians and a family doctor in Spokane.

Stream said even common medications give him pause without an office visit to provide more information. “We always think of some of these medications, even if they’re over the counter, as being harmless, and that’s simply not the case,” he said.

But the change in rules has an upside, too, he said. “If this process leads to more complete knowledge of what (medications) patients are taking, hopefully it would lead to better health care and avoiding drug interactions.”

Individuals typically save $250 to $640 a year in federal taxes by contributing to flexible-spending accounts, according to figures from Aon Hewitt. But workers are often reluctant to participate because of the possibility of losing unused money at the end of the year or after 15 months, if the employer offers an IRS-sanctioned grace period.

One in five employees contributed to an FSA this year, Aon Hewitt found, with the average contribution totaling $1,441. But 18 percent of workers set aside more than $2,500. Roughly 25 percent of FSA expenses are for over-the-counter medications.

The new rules for FSA reimbursement are part of the new health care law. The tighter requirements also affect health-savings accounts, health-reimbursement arrangements and Archer MSAs, and are expected to raise an estimated $5 billion in tax revenue in the next nine years, according to the Joint Committee on Taxation.

Many analysts expect a bigger impact to come in 2013, when workers’ FSA contributions will be limited to $2,500 a year.