June 30, 2011 Amendment for Cafeteria Plans

Cafeteria plan documents providing for medical flexible spending accounts must be amended by June 30, 2011 to limit the reimbursements to prescribed drugs or insulin.  The cost of over-the-counter drugs may not be reimbursed after 2010.  This change results from the Health Care Reform legislation enacted last year.  The amendment must be retroactive to January 1, 2011 and made by June 30, 2011 according to IRS Notice 2010-59.  The way around this restriction is to receive a prescription from your doctor for the over-the-counter medicine.

Note that the restriction also applies to Health Reimbursement Arrangements (HRAs), Health Savings Accounts (HSAs), and Archer Medical Savings Accounts (Archer MSAs).  If a non-qualifying reimbursement is made by an HSA or an Archer MSA, the reimbursement will be included as taxable income and subject to a 20% tax penalty.

The restriction does not apply to items that are not medicines, such as crutches, bandages, diagnostic devices, etc.