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Is there any responsibility or obligation for an Administrator or a Plan to report or take action when a participant of an HRA plan is buying what appears to be an excessive amount of over-the-counter medicines under the HRA plan? The retailer uses the Inventory Information Approval Substantiation with the SKUs so the expenses are automatically substantiated. The over-the-counter medications are normal cold medications that are qualifying expenses and permitted under the plan.

Any thoughts?

Benjamin Smith

Senior Manager - Indirect Tax

Ernst & Young

317.681.7495

Benjamin.Smith@ey.com

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Guest dsw713
Is there any responsibility or obligation for an Administrator or a Plan to report or take action when a participant of an HRA plan is buying what appears to be an excessive amount of over-the-counter medicines under the HRA plan? The retailer uses the Inventory Information Approval Substantiation with the SKUs so the expenses are automatically substantiated. The over-the-counter medications are normal cold medications that are qualifying expenses and permitted under the plan.

Any thoughts?

I would say that this is not your responsibility to monitor nor judge why a participant is buying what you deem to be an excessive amount of OTC meds. If they are ingredients being used in meth labs, the government is already tracking these types of items.

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I think that is the issue. At what point are the OTC meds not considered qualifying medical expenses? Does the Plan have a duty to request additional substantiation from the participant? What would be possible consequences to the plan if it were to do nothing?

Benjamin Smith

Senior Manager - Indirect Tax

Ernst & Young

317.681.7495

Benjamin.Smith@ey.com

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At the point the volume of over-the-counter meds for which HRA reimbursement is sought by the employee raises a reasonable suspicion about whether the employee (and if your HRA also covers, his spouse and health care dependents) are using all of the over-the-counter meds. As QDROphile suggests, it's not an easy call.

I doubt there's substantiation beyond asking the employee to sign a statement that he (and his) are consuming all the over-the-counter meds. Documents are not generated incident to taking an aspirin from a bottle that has been purchased, just the purchase receipt which I assume you are already requiring be provided.

Consequences to the plan? If--and that's a big IF--challenged by the IRS, it might want to disqualify the tax-free treatment of all other benefits that have been run through the HRA on the premise that the over-the-counter abuse is indicative that the HRA has been abused. A more moderate IRS approach would be to either contain the taxation of amounts reimbursed under the HRA to just the excess amounts for over-the-counter medications, or to just reimbursements to that employee.

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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  • 4 weeks later...

The Plan does not utilize a debit card or payment card with the HRA. The participants have to submit the receipts to the plan for reimbursement so there is no automatic substantiation. It seems like the only real option for the plan is to request additional substantiation as to why the large amount of over-the-counter medicine is needed. If the participant can not provide more information/substantiation as to the need for so much over-the-counter meds, can the plan deny the reimbursement even though the plan document does not provide specific limits?

I have seen comments and provisions in certain articles/HRA Plan Docs stating that the IRS does not permit stockpiling of over-the-counter meds but I can not find anything specific from the IRS to that point. Does anyone know where the IRS has stated that stockpiling is not permitted?

Benjamin Smith

Senior Manager - Indirect Tax

Ernst & Young

317.681.7495

Benjamin.Smith@ey.com

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  • 3 years later...

The IRS now requires all over-the-counter medications to include a doctor's prescription in order to be to be reimbursed through an HRA.

Read a full article on Over-the-Counter Medicines and HRAs.

If the participant is submitting a large amount of OTC expenses, then they will have to prove (with documentation) that it is treating a medical condition. The Plan Admin should not know what the participants' medical expenses are for.

If you suspect drug usage, you may explore the option of giving employees a random drug test.

If Zane Benefits is your HRA Administrator, we are always here to answer such questions, via e-mail, online forum, and phone!

Disclaimer: This information is general in nature and does not apply to any specific U.S. state except where noted. Health insurance regulations differ in each state. See a licensed agent for detailed information on your state. Zane Benefits, Inc. does not sell health insurance.

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