The first time you walk into your local pharmacy  in 2011, to buy a package of cold medication and a bottle of cough medicine, you'll be in for a surprise if you try to pay with the debit card from your health savings account (HSA) or flexible spending account (FSA). While the purchase may go through, you could face a stiff penalty if you don't have a prescription.

A little-noticed measure in the federal government's Patient Protection and Affordable Care Act prohibits the purchase of over-the-counter medications from HSAs, FSAs and similar accounts as of Jan. 1, 2011, unless it's accompanied by a doctor's prescription.

Health care and banking experts expect a good deal of confusion as details of the law are sorted out, as retailers and financial institutions try to cope with the change and as consumers try to make purchases as the new year rolls in.        

"It will be interesting to see what happens Jan. 1, and if this aspect of the law can truly be put into place," says Ralph Bernstein, senior vice president of Healthcare Payment Solutions at U.S. Bank, which offers HSAs.

HSAs, FSAs defined
Health savings accounts are offered to individuals who have a high-deductible health plan. No income tax is paid on money that is put into the account, and it then can be used to pay for qualified medical expenses.

Employers set up flexible spending accounts to allow employees to set aside part of their pay -- before it is taxed -- to cover qualified medical expenses.

Currently, the millions of users of such accounts can simply walk into their local retailers, pick out their favorite over-the-counter remedies, swipe their debit cards and walk out the door with purchases in hand.

HSA account holders have been able to use their debit cards to buy over-the-counter remedies (OTCs) ever since the accounts were first introduced in 1997.

Flexible spending account holders have been able to use them on over-the-counter remedies since 2003 and in 2009, they were granted the option of using their debit cards. Before then, they had to collect receipts for such purchases and submit them to their health care plan administrator for reimbursement.

By allowing purchases of over-the-counter medicine, "people already using it (FSAs) added more money. People who never used it started using it," says Becky Parker, manager of health reform for McQueary, Henry, Bowles, Troy, a privately owned insurance broker based in Texas. With the addition of debit card purchases, accessing flexible spending account funds for over-the-counter purchases "became so popular and so easy."

Prescriptions to be required more often
At the moment, everything from aspirin to allergy medication to acid controllers can be purchased using pretax dollars put into an FSA, HSA or similar account. But with the change in the law, that won't be possible without a prescription. Other medical supplies and diagnostic devices, such as bandages, contact lens solution and blood pressure monitors, still can be bought prescription-free.

Parker says about 15 broad categories of medications are prohibited under the legislation, encompassing about 15,000 products.

The move was designed to help pay for health care reform legislation and is expected to generate $10 billion in 10 years, says Steve Wojcik, vice president of public policy at the National Business Group on Health, a nonprofit organization that represents large employers on national health policy issues.

The change "certainly makes HSAs and FSAs less valuable," Wojcik says, though the accounts still can be used for things such as doctor visit co-pays, dental work or other over-the-counter medical supplies.

Donna Ray Chmura, an attorney with Sands Anderson PC in Research Triangle Park, N.C., says that as the mother of two, she's concerned about the change in the legislation. "I know a lot of families that budget as much health-care costs as they can with pretax dollars." With the change in the law, she expects to put less money in her flexible spending account because she doesn't want to "let anything in the account expire."

Tricks and traps
FSAs can be tricky because if holders don't use all the money, they lose it. Right now, if someone has $40 or $50 left in his flexible spending account at year's end, he can use the money up on purchases such as aspirin or sleep aids, but come Jan. 1, that will no longer be possible.

It's different with an health savings account, where the money rolls over from year to year.

HSAs are also different in that the money can be used for a nonqualified medical purchase, but it'll cost them. For example, if a person spends $300 to buy a flat-screen TV, she has to pay income tax on the money, plus a 10 percent tax penalty. Come Jan. 1, the penalty increases to 20 percent. Only consumers 65 and older can withdraw money without penalty.

HSA Bank, based in Sheboygan, Wis., doesn't monitor what health savings account holders spend their money on, so someone could buy a bottle of milk or a bottle of aspirin with their debit card, says Itamar Romanini, senior vice president of HSA Bank.

That also means if someone buys an over-the-counter remedy and doesn't have a prescription, and the IRS discovers the error, the consumer will face a 20 percent penalty, Romanini says.

Liz Ryan, head of Wells Fargo Health Benefit Services, says the bank also doesn't screen purchases made from HSAs. "Account holders are ultimately responsible for determining whether a health care expense is eligible for reimbursement from their HSA."

She says many retailers should be able to tell a customer if a purchase is reimbursable. Right now, Target marks the receipt with a "+" sign if the item is health savings account-eligible.

Lingering confusion
But there's much confusion over what will happen when the new law takes effect and over-the-coiunter medicines will be reimbursable only with a doctor's prescription. U.S. Bank's Bernstein says, "there has been almost no guidance after the law was passed about any of this."

The challenge will be figuring out how to distinguish between customers who have prescriptions for OTCs and those who do not, he says. Some consumers might go to buy an over-the-counter remedy and have their debit card rejected.

To avoid the confusion, some consumers might just opt to pay for such items out of pocket. Getting a prescription might entail a visit to a physician's office, with its associated costs in time and money, Parker says.

It could also hint at pre-existing medical conditions. Some consumers may think, "I'm not sure if I want my knee pain on my permanent medical history so I can get my ibuprofen tax-free," she says.

Another short-term option could be stockpiling over-the-counter medicine, though Wojcik warns shelves could be bare come late December, if everyone tries to do so at the last minute.

And Parker cautions that the IRS prohibits stockpiling more than three months worth of medication.

Parker thinks it will all come down to weighing the costs and benefits of getting a doctor's prescription to be able to continue to purchase OTCs tax-free. While many of the medications cost only a few dollars, "the little bitty things all add up."

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