A health-care flexible spending account (FSA) allows you to pay for certain qualified medical and dental expenses with pretax dollars. With a health-care FSA, you can contribute pretax earnings to the plan (usually through a salary reduction agreement with your employer) and submit qualifying expenses to the plan for reimbursement. If you tend to spend a lot of money on medical expenses that are not covered by your health plan, contributing to an employer-sponsored health-care FSA is a good way to help pay for these expenses.
Although over-the-counter (OTC) medications used to be reimbursable from a health-care FSA, the Patient Protection and Affordable Care Act of 2010 amended the definition of qualified medical expenses for health-care FSA reimbursement purposes. As a result, OTC medications (except for insulin and medications that are prescribed by a physician) are no longer eligible for reimbursement.
However, many OTC medications are also available by prescription. You may want to ask your doctor for a prescription for any OTC medications that you use on a regular basis (e.g., pain relievers and allergy medications). You’ll need to submit the prescription along with a receipt to your FSA provider in order to get reimbursed. Some FSA providers offer forms that allow your doctor to write a prescription once for any of the OTC medications that you’ll need throughout the year.
Currently, there is no legal limit on the amount that you can contribute to a health-care FSA. However, most employers do impose a cap on contributions (typically $3,000 to $5,000). And beginning in 2013, if a health-care FSA is part of a cafeteria plan, annual contributions will be capped at $2,500 (starting in 2014, that amount will be adjusted for inflation).
Finally, when participating in an FSA, it’s important to remember that you cannot carry over any money you contribute from one plan year to the next–in other words, if you don’t use it, you lose it. As a result, it’s important to choose your contribution amount carefully so that you don’t risk losing any contributions at the end of the plan year.