June 30, 2011 Deadline for Cafeteria Plan (FSA) Amendments

For a printable copy of this alert, please click here.

The health care reform law passed last year provides that certain employer health plans, including health flexible spending arrangements (FSAs) and health reimbursement arrangements (HRAs) cannot reimburse expenses incurred for over-the-counter drugs unless they are prescribed by a physician or are insulin.[1] See our prior Alert (in the section on 2011 changes) at http://jaeckle.com/importantDatesHCR. Employers who sponsor FSAs may need to amend their plans by June 30, 2011 to comply with this new restriction. (Whether an amendment is needed will depend on how the plan defines reimbursable expenses)

The restriction on reimbursement of over-the-counter drugs took effect as of January 1, 2011, or January 15, 2011 for medications purchased with debit cards. Normally, cafeteria plan amendments (including amendments to FSAs) may only be effective prospectively - that is, the amendment must be adopted before it takes effect. However, the IRS - in Notice 2010-59 - gave sponsors of FSAs an additional six months to adopt the necessary plan amendments to comply with this restriction. The six month extension expires on June 30, 2011. Specifically, cafeteria plan amendments to conform with the new restriction on reimbursement of over-the-counter drug expenses that are adopted by June 30, 2011, may be retroactively effective for expenses incurred after December 31, 2010, or after January 15, 2011 for debit card purchases.

A similar restriction applies to the reimbursement of expenses for over-the-counter medications under health savings accounts (HSAs) and Archer Medical Savings Accounts (MSAs).

Jaeckle Fleischmann & Mugel has posted a number of Alerts on the health care reform law in a special section of its website: http://jaeckle.com/HealthCareReform.

IRS Notice 2010-59 can be found here: http://www.irs.gov/pub/irs-drop/n-10-59.pdf.

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This Jaeckle Alert, prepared by the attorneys at Jaeckle Fleischmann & Mugel, LLP, is intended for general information purposes only and should not be considered legal advice or an opinion on specific facts. For more information on these issues, contact one of the attorneys listed above or your existing Firm contact. Prior results do not guarantee a similar outcome. The invitation to contact is not a solicitation for legal work in any jurisdiction in which the contacted attorney is not admitted to practice. Any attorney/client relationship must be confirmed in writing. 

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