New Rules for Flex Spending Accounts

New federal regulations that take effect January 1, 2011 will require a written prescription for over-the counter (OTC) drugs and medications, limiting tax-free reimbursement from your Flex Spending Account (FSA).

You can still use FSA funds to buy OTC medical supplies. In addition to such purchases as crutches, medical-testing kits and joint supports, you can continue to use FSA funds for Band-Aids, contact lens solution and hearing-aid batteries. Out-of-pocket expenses for eyeglasses and orthodontia are allowed. And the new rule specifically exempts reimbursements for the cost of insulin, which you can still buy without a prescription.

However, OTC medicines aren't a big part of FSA spending, on average. Only 9% of FSA reimbursement claims, and only 3% of FSA dollars, are for purchases of OTC drugs and medicines, according to CBIZ, a professional-services company that processes 46,000 FSA claims per month.

The 2011 NYS Flex Spending Account/Health Care Spending Account Open Enrollment Period continues through November 15, 2010.

If you haven't enrolled yet for 2011, now is the time to review how much you spent in 2010 and 2009 on over-the-counter drugs and medicines, as well as other out-of-pocket costs.

Some FSA enrollees who don't exhaust their FSA dollars by the end of the year use the money to stock up on medicines and supplies. This year, it's wise to use unspent FSA money to stock up on over-the-counter drugs and medicines before Jan. 1, because after that date you will need a prescription to claim them as FSA expenses.