Reimbursable OTC Items for Health FSAs, HRAs and HSAs

Health flexible spending accounts (FSAs), health reimbursement arrangements (HRAs) and health savings accounts (HSAs) may provide tax-free reimbursements of certain over-the-counter (OTC) items. OTC items are those that are generally available to consumers without a prescription.

To be reimbursable, an OTC item must be for “medical care,” as defined under Internal Revenue Code (Code) Section 213(d). Medical care expenses are amounts paid for the diagnosis, cure, mitigation, treatment or prevention of disease, or for the purpose of affecting a structure or function of the body.

Prior to 2020, the Affordable Care Act (ACA) prohibited health FSAs, HRAs and HSAs from reimbursing the costs of OTC medicine or drugs (except for insulin) on a tax-free basis, unless they were prescribed. However, effective Jan. 1, 2020, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) eliminated the ACA’s prescription requirement and CARES Act allows OTC drugs, along with menstrual care products, to be treated as qualified medical expenses that may be paid for using these tax-advantaged arrangements.