Flexible Spending Account and Health Savings Account Participants: Be Aware of Changes For 2011

We were surprised recently with an article in our newspaper about future changes for Health Savings Accounts (HSA) and Flexible Spending Accounts (FSA) scheduled for 2011.

For a variety of reasons, my husband and I chose a high deductible health insurance plan when I left my corporate job with insurance benefits and we needed to purchase individual health insurance. To coincide with our high deductible health insurance plan, we opened up a health savings account.

For those of you not familiar with Health Savings Accounts (HSA) and Flexible Spending Accounts (FSA), they are accounts that allow Americans to pay for medical expenses with pretax dollars.

An HSA can be opened with a high-deductible insurance policy. The account holder can deposit pre-tax money into the account up to the yearly maximum of $6150 for a family and $3050 for an individual. This money can be used at any time for qualified medical expenses. Any money not used by the end of the year can continue to stay in the account and there are penalties and taxes if the money is withdrawn for non-medical uses.

With a FSA, an employer offers employees the ability to set aside pre-tax income into their account to be used for qualified medical expenses, but the money in the account must be used by the end of the year.

Welcome 2011

In years past, participants in these plans could use these accounts to purchase over-the-counter medicines, but that will no longer be the case for 2011. Things like cough, cold and flu remedies, pain relievers, allergy and sinus relievers, antibiotic products, baby rash creams are just a few examples of products that could be purchased in the past with these spending/savings accounts. But in 2011, if you want to purchase these products and use your spending/savings accounts, you will need a prescription from your doctor.

Some over the counter products can continue to be purchased without a prescription from your doctor, such as bandages, contact lens supplies, denture adhesives, first aid supplies, just to name a few.

I feel very fortunate that we don’t use too many over-the-counter remedies. But in the past, if I needed something like diaper cream, I purchased the product using our health savings account. I’m not so sure I will be calling my doctor requesting a prescription AND driving to her office to pick up the prescription for a $5 item. For me, the time involved just won’t make it worth purchasing the item with pre-tax money.

It remains to be seen how medical practitioners will deal with the request from their patients with these accounts. The article made it sound like a lot of doctors are not aware of this change and what could be an onslaught of phone calls.

It also suggested that many account holders are not aware yet of this change. And quite frankly, if I hadn't read the article in the newspaper we would not have known about it. We have yet to receive anything from the bank of our health savings account.

And what about the pharmacies? I used to be able to purchase an over-the-counter product anywhere it was sold and use my HSA. With a prescription, does that mean I can only get those items at a pharmacy after showing my script to a pharmacist? Does this all sound time-consuming to you too?

Between now and December 31, 2010, if you have the funds in your spending/savings accounts, you might want to stock up on the over-to-counter products that you use regularly. This will save yourself the aggravation of asking your doctor for a prescription and you will still be able to use your tax-advantage account. In 2011, you will have to ask yourself if it will be worth your time to seek a prescription from your doctor for a simple over-the-counter remedy just so that you can use your spending/savings account.

Hopefully some more information will be coming soon from our employers or banks. When I find an official list from the IRS, I will publish the link for you.

Do you have a flexible spending account or health savings account? Did you know about this change?

Disclaimer: I am not a financial or insurance professional. If you have questions and concerns about your Flexible Spending Account or Health Savings Account, contact your employer or administrator of your account.

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