OTC Claims...

[Guest BeneGal]

Now that this is in place... what about current plan years? Can participants begin to claim OTC's now? Can they go back to service dates earlier in the current plan year or only service dates on or after the announcement date?

[Guest chloe]

Our counsel has spoken to the IRS this morning and this ruling is effective immediately. Since the IRS never issued any official guidance on their previous stand that OTCs were not reimbursable, the ruling stands as an interpretation of existing law and not a change. So, if the SPD does not specifically exclude OTCs, they are reimbursable (probably retroactively). If the SPD does exclude OTCs specifically, they can still be denied until the SPD is changed.

The IRS doesn't want to admit that their previous statements were incorrect, so this is going to cause a lot of problems for carriers and employers.

[Guest llerner]

Chloe:

Retroactively to the beginning of the Plan year or prior plan years with the same employer or any employer? I think it would make sense to begin with this Plan year only otherwise those particpants that lost funds due to the"use it or lose it" clause years ago could therefore put in a claim since OTCs cover quite a bit of ground. I am envisioning lawsuits & an employer nightmare if they don't narrow it down to a go forward basis or to current plan year retroactive. The IRS may have made a mistake or they may just have reinterpreted based on 105 rather than 213. Other decisions have supported RX only. What did they say to your attorney regarding the term"retroactively?" Without a definition of what would be submissable on a retroactive basis, this could cover many years, multiple employers, multiple plans.

[Guest chloe]

In "informal" discussions (of course), the IRS has stated that, if the SPD does not include a specific exclusion for OTC drugs (in other words, the document just refers broadly to reimbursements allowable under Code Section 213(d)), then the plan can reimbursement immediately going forward. It can also reimburse back to the beginning of THIS plan year if proper substantiation is provided for each claim.

If the SPD includes a specific exemption for OTC drugs, reimbursement isn't available until the plan document is amended and can only be on a prospective basis. One more arguement for keeping the SPD more general.

There are still a lot of questions about this ruling. We're scrambling to find answers and to communicate to our customers. One thing the IRS has said is that this ruling does not permit any mid-year election changes.

[mroberts]

I would suggest waiting to implement this change until 2004 if you're SPD exlcudes them. It can't hurt to wait and get further guidance. Additionally, most employees probably didn't fund their FSA accounts in the hopes that OTC drugs would be approved this year, so it's kind of a moot point.