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Making The Most Of Health Care Spending Accounts


UPDATED: Wednesday August 17, 2011 3:32 PM

A big change in federal tax law is making it more important than ever to have an established, communicative relationship with your primary doctor.Angie's List shows you how to get the most of your heath care spending account.

Effective Jan. 1, 2011 anyone using a Flexible Spending Account (FSA), Health Savings Account (HSA) or Health Reimbursement Account (HRA) to purchase any over-the-counter medicines will first need a doctor's prescription, or the purchase will be denied or ineligible to be reimbursed. In the past, consumers with health care spending accounts could be reimbursed for these purchases without a doctor's authorization.

What that means for consumers:

  • You'll need a prescription from your doctor for those OTC drugs.
  • It's more important than ever for FSA users to review their medical spending habits and strategically estimate the year's medical needs so they can designate the right amount into their accounts before the next open enrollment session.
  • FSA and HRA holders are now required to submit receipts showing the prescription number and payment information for any OTC medications to their plan administrator.
  • Those with HSA's are not required to submit documentation, as HSA's are instead handled between the cardholder and the IRS. However, it is the holder's responsibility to have that documentation ready should they be audited. If found to use HSA dollars for ineligible products, including OTC medicines without a prescription, the amount is treated as taxable income and will be taxed at 20 percent. HSA balances can typically carry over from one year to the next, though.

Money Saving Advice:

  • To avoid having to spend money on co-pays and doctors visits every time you want to purchase an OTC medicine, talk to your doctor ahead of time about your needs. He or she will likely be more inclined to work with you on this if you've already established a good relationship.
  • Have a list of what you generally buy so you can get everything you need prescribed in one doctor's visit.
  • Ask about virtual visits that allow you to email your requests in and avoid an office call altogether. Virtual visits are convenient, and can cost less than an in-person visit.

For those who must use their funds by the end of the year and can't, or don't want to bother with getting prescriptions filled there are other medical items you can purchase with your health care spending account that you might not ordinarily think of: Use your funds for items like glasses, bandages, braces and supports, ice packs, thermometers, and personal medical supplies.

You can use your allocated health dollars to join a weight loss program, if it is for treatment of a specific disease, visit a chiropractor or see an acupuncturist. Those with diagnosed hearing loss can purchase qualifying specialty televisions and telephones. A health care spending account can even pay to reconfigure an automobile to accommodate a disability, or to modify your home to accommodate a medical condition. It can also pay for the cost of removing lead-based paints from your home.

Visit http://www.irs.gov/publications/p502/index.html for a complete list of qualifying and non-qualifying purchases, or call your plan administrator or human resources specialist to be doubly sure you're following the rules.

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