Major Changes Are Coming to Flex Spending Accounts

Here’s one of the opening salvos, brought to you by the Affordable Care Act of 2010: the IRS has now issued guidance regarding changes to Flex-Spending plans (or Flex Spending Arrangements, FSAs), which has changed things for folks who use these plans – specifically the medical expense reimbursements.

In the past, these plans have been eligible to reimburse the owner of the account for a myriad of medical expenses, not only physician expenses, prescription drugs, and other health care expenditures, but also over-the-counter medicines or drugs (not controlled by prescription).

Beginning in 2011, due to the Affordable Care Act, over-the-counter drugs and medicines that are not ordered by prescription will no longer be eligible for reimbursement from a medical Flex-Spending plan. The change does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eye glasses and contact lenses, co-pays and deductibles.

This new standard goes into effect for purchases made January 1, 2011 or after, and a similar standard is due to be in place for Health Savings Accounts (HSAs) and Archer Medical Savings Accounts (Archer MSAs).  But never fear, reimbursements are still going to be available for your 2010 expenditures through March 2011 as always.

If you have one of these FSAs, you’ve probably gotten into a situation in the past (I know I have) where you had too much money set aside through the year for your “regular” medical expenses, and so at the end of the year you make up the difference by stocking up on standard over-the-counter drugs and medicines.  This option will no longer be available to you at year-end in 2011.

Stay tuned as more of this quite helpful guidance comes along.  I’m sure we’ll be collectively satisfied with the results – or but then again, probably not

About the author

Jim Blankenship, CFP®, EA

Jim Blankenship is the founder and principal of Blankenship Financial Planning, Ltd., a financial planning firm providing hourly, as-needed financial planning and advice. A financial services professional for over 25 years, Jim is a CFP professional and has earned the Enrolled Agent designation, a designation that qualifies him as enrolled to practice before the IRS. Jim is also a NAPFA-registered financial advisor, which designates him as a Fee-Only Financial Advisor.

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