As you consider your insurance options for next year and plan for what, you may want to factor in your over-the-counter medicine costs as well.
M. Spencer Green/AP
Packages of aspirin on sale at a Chicago drugstore.
Starting in January, you'll no longer be able to use your flexible spending account for over-the-counter medicine like aspirin, allergy medicine and antacids unless you have a doctor’s prescription.
The change is part of the health overhaul, which will also cap the total amount employees can contribute to their FSAs. But that change doesn’t kick in until 2013.
There’s another little noticed wrinkle to keep in mind as well. Many employers give employees a grace period during the first 2 1/2 months of the year to use up any FSA funds left over from the previous year, which they would otherwise forfeit under FSA use-it-or-lose-it rules. But even if your employer offers a grace period, you can’t use leftover 2010 FSA money for over-the-counter medicines and drugs in 2011.
According to the Internal Revenue Service, the new rule applies to any purchases made on or after January 1, 2011. So even if you’re using 2010 money, 2010 rules for over-the-counter purchases no longer apply in 2011.
Speaking of the IRS, there’s another future wrinkle on FSAs: Under the law, starting in 2018 employers will have to pay a 40 percent excise tax on so-called Cadillac health plans whose value is more than $27,500 for family coverage and $10,200 for individuals.
The value of those health insurance plans will include not only the policy itself but reimbursements under FSA accounts, too. “I think over time flexible spending accounts will become less attractive,” says Mike Thompson, of PwC (PricewaterhouseCoopers) Human Resource Services.
But procrastination really could cost you in this instance. If you’re accustomed to loading up on OTC essentials with FSA money, do it now, before the year is out.