OTC reimbursement in HRA setting

[billfgrady]

Revenue Ruling 2003-102 provides that over-the-counter-drugs can be paid for with pre-tax dollars through health care flexible spending accounts. This is old news. But what about HRAs?

[g8r]

The same rule applies to HRAs (i.e., OTC drugs are reimburseable).

[billfgrady]

What about Archer MSAs or HSAs? Are OTC drugs covered?

[Guest BenefitsLawyer]

So long as the plan/arrangement provides for reimbursement of medical expenses as defined by IRC 213(d), OTC is covered. If the plan'arrangement provides for reimbursement of medical expenses that are deductible under IRC 213, OTC is not covered--but the plan/arrangement could be amended to use 213(d) as the test.

[billfgrady]

I'm not so sure that is correct. My understanding is that the Code Sec. 105(b) exclusion for reimbursements of employee health expenses (which applies to over-the-counter drugs as provided under Rev Rul 2003-102) is broader than the Code Sec. 213 deduction for medical expenses (which does not apply to over-the-counter drugs, as provided under Rev Rul 2003-58). Isn't it Code Sec. 105(b) that is driving this issue?

[GBurns]

The medical expenses of 105(b) are different from the medical expenses of 213. HRAs and HSAs are 105(b) plans. 213 only provides the definition.

[billfgrady]

GBurns:

Did you mean to say that HRAs and FSAs (not HSAs) are Section 105(b)? I'm not aware that Section 105(b) applies to HSAs.

[GBurns]

Thanks for the correction.

HSAs are section 223 not 105(b). What the medical expenses will be, I do not know since I have not yet read the new section. What rules will apply when they are offered under a section 125 plan will need clarification.