As many employers navigate their first months of compliance with the Patient Protection and Affordable Care Act, it could be assumed that employees are enjoying the quiet before the storm - patients taking advantage of "free" preventive care visits to help offset a necessary bump to copays and other cost-sharing items, and parents enjoying the opportunity to cover their "late-bloomer" children until age 26.
Truly, most of PPACA's early requirements were exceptionally employee friendly. Although I'll never gain a reputation for being a cheerleader for PPACA, I certainly used it to my advantage at those October open enrollment meetings to couch the bad news regarding necessary cost-sharing hikes for the coming plan year.
But there's one nagging change that is less than employee friendly, and some might even consider it an ominous foreshadow of things to come.
If the nation's health care retailers enjoyed any significant success in the first fiscal quarter of 2011 (last calendar quarter of 2010), it could be directly attributed to flexible spending account participants visiting local drug stores in droves to buy nonprescription over-the-counter medicines with their 2010 FSA dollars while they still could.
PPACA's first takeaway that will directly affect employees is the end to tax-favored FSA reimbursements for nonprescribed OTC medicines and drugs. These new limitations also will apply to health reimbursement arrangements, medical savings accounts and health savings accounts in 2011.
Challenges with processing, math and communication
This year, employees still can get reimbursed for OTC medicines - but they must be accompanied by a doctor's prescription and the reimbursements must be obtained through the old-fashioned paper-pushing process. That's right folks - no handy debit or credit cards for this purpose.
This is quite unfortunate, as it wasn't until a couple of years ago that my FSA program finally reached the 20th century (reaching the 21st century remains a distant goal) and I rolled out debit cards for FSA participants along with my annual holiday greeting cards.
The cards have been wildly popular. Enrollment in the FSA program has nearly doubled since the introduction of the cards - a true win/win for the county and the employees - and users love the convenience the cards offer.
Closing out year three, I've yet to receive a complaint about this handy way of paying for qualified services and products on a tax-favored basis. It took a little patience to explain to my debit-card fans that the cards can't be used for OTC medicines that have the required prescription. It almost seems as though we're going a bit backward in this area.
There's also the math regarding the whole thing. Having majored in English, I am the first to admit that math has always been a personal shortcoming.
But even my right-brained reasoning tells me that having to get a doctor's prescription to have an OTC medication qualify under an FSA doesn't add up. The cost of the $20 or $40 copayment nullifies the tax advantage of a $10 bottle of aspirin. I can only hope our employees took this into consideration as they contemplated their FSA elections for 2011.
Another challenge in communicating these changes to participating employees is that the 2010 grace period (which lasts until March 15, 2011) does not extend to non-prescribed OTC medicines. This was a little tricky to explain to a population of procrastinators who always use that grace period to spend those remaining prior-year dollars.
But like the debit cards, county employees have enjoyed the tax-favored status of OTC drugs under their FSA plans for a short time. The Treasury Department (with loving support from the IRS) approved their FSA eligibility in 2003 - a scant eight years ago, - along with the introduction of the HSA. But the federal government can giveth and also taketh away. One lawmaker's brainchild can become another lawmaker's loophole.
Although the new laws will allow the continued tax-exempt status of OTC medicines and drugs with a corresponding prescription, and continue to allow insulin without one, some estimates put the annual revenues to the government at more than $5 billion in 10 years as a result of this change to the taxable status of these medications.
This is a mere drop in the bucket when compared to the total anticipated cost of the Affordable Care Act. In a couple of short years, however, more revenues will be gained as employees face a reduction in the annual amount of dollars they can allocate under their FSA accounts.
But as I mentioned before - this is only the calm before the storm.
Contributing Editor Nancy L. Bolton is the director of risk management for the Palm Beach County Board of County Commissioners in West Palm Beach, Fla.
