On March 27, 2020, the president signed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) into law. The CARES Act contains several provisions that affect employer-sponsored retirement and health and welfare plans). This blog entry highlights one particular benefits-related change in the CARES Act: reversal of the Affordable Care Act (“ACA”) restriction on tax-favored reimbursement for over-the-counter (“OTC”) drugs and products.
The ACA amended several provisions of the Internal Revenue Code (the “Code”) to prohibit tax-favored reimbursement for OTC drugs costs by health savings accounts (“HSAs”), Archer medical savings accounts (“Archer MSAs”), health flexible spending arrangements (“Health FSAs”), and health reimbursement arrangements (“HRAs”). The ACA excepted insulin purchases and prescribed OTC drugs from this prohibition. This reimbursement restriction was controversial and has been in the current administration’s crosshairs from day one, since both legislative attempts in 2017 to repeal and replace the ACA would have permitted OTC drug reimbursements.
The CARES Act reverses the ACA’s reimbursement limitation and allows HSAs, Archer MSAs, Health FSAs, and HRAs to reimburse for OTC drugs and products after December 31, 2019. Interestingly, the CARES Act did not explicitly remove the ACA’s reimbursement restrictions. Instead, it replaced the operative Code provisions with a clarification that menstrual care products are to be treated as qualified medical expenses.
Where does that leave group health plans? IRS Revenue Ruling 2003-102 (which was deemed obsolete after the ACA was enacted) held that OTC drugs purchased to alleviate or treat personal injuries or sickness were eligible medical expenses. Using that Revenue Ruling as a guidepost, employers and plan sponsors should consider the following.
Reimbursing plan participants for OTC drugs and products can create administrative headaches, so as employers evaluate their group health plans, we recommend consulting with legal counsel when designing the parameters of OTC reimbursement and communicating to participants.