I feel like I’m on a roller coaster. You know that feeling. Light-headed as you soar high over the landscape, stomach rising to your throat as you plunge further and further down before pulling up into the next impossible climb.
Then I realize I’m not at the amusement park at all, I’m still trying to keep up with all the health care changes associated with the Patient Protection and Affordable Care Act (The Act). In January I wrote about the rules in effect at that time, and now—just one month later—this article is about changes that have taken place since then.
Over-the-Counter Drugs and Debit Cards
Beginning January 1, 2011, participants must obtain a prescription from their physician in order to pay for over-the-counter (OTC) drugs or medicines through their flex plans. The prescription may be filled through the pharmacy or the participant may turn in a claim to his TPA with a detailed receipt for the item and a copy of his prescription attached to the form. This element of the law has not changed.
I reported in January that participants could not use their health care debit cards to purchase OTC drugs or medicines. This part of the law has changed with IRS Notice 2011-5, which allows the continued use of health flexible spending account (FSA), health reimbursement arrangement (HRA), and health savings account (HSA) debit cards for the purchase of OTC drugs and medicines if:
a Prior to the purchase, the prescription for the OTC medicine is presented (in any format, i.e., electronic or paper) to the pharmacist.
a The OTC medicine is dispensed by the pharmacist in accordance with applicable law.
a A prescription number is assigned.
a The pharmacy retains a record of the prescription number, the name of the purchaser (or name of the person for whom the prescription applies) and the date and amount of the purchase.
a All of these records are available to the employer or its agent upon request.
a The debit card system will not accept a charge for an OTC medicine unless a prescription number has been assigned.
a All the requirements of this guidance are met.
Get a prescription for Claritin? Yes, that’s what The Act requires. And, in order for the card to work, you must present the prescription to the pharmacist who will fill and dispense the OTC drug just like they do for drugs that are only available by prescription, such as antibiotics.
How does the debit card know the difference between OTC prescriptions and prescriptions for antibiotics? The answer is: It doesn’t have to. Both are prescriptions, delivered through the pharmacy, and will automatically be coded as prescriptions.
Want more information? Go to www.irs.gov/pub/irs-drop/n-11-05.pdf to view the entire Notice.
Nondiscrimination Rules for
Fully-Insured Group Health Plans
Another requirement embedded in The Act is that non-grandfathered, fully-insured group health plans must apply the nondiscrimination rules under Internal Revenue Code (IRC) Section 105(h) for plans starting on or after January 1, 2011. Historically, these nondiscrimination rules applied to self-insured group health plans. It is not within the scope of this article to outline these nondiscrimination rules, but suffice it to say the testing is onerous and the regulatory guidance is thin.
In addition, The Act is very serious about compliance. Generally, up to $100 per day per individual could be assessed to the employer for the noncompliance period. Because regulatory guidance is essential to the operation of these provisions, compliance with these rules will not be required until after regulations or other administrative guidance has been issued.
Compliance with The Act will not apply until plan years, beginning a specified period after guidance has been issued. The delay was announced through Notice 2011-1. Read the entire Notice at: www.irs.gov/pub/irs-drop/n-11-01.pdf.
Social Security and Medicare Wage Base
You may see an increase in your paycheck. Starting January 1, 2011, the tax rate for employee withholding was reduced to 5.65 percent instead of the 7.65 percent withheld in previous years. The temporary Social Security rate of 4.2 percent will be applied to wages up to the maximum taxable wage base of $106,800, which remains unchanged for 2011.
Employers matching FICA rate remains at 7.65 percent of wages up to the maximum taxable amount. The Medicare portion of 1.45 percent is applied to all wages.
Tax Breaks Extended through 2011
Congress was busy prior to their holiday break. The transit and vanpooling monthly limit, which increased to $230 in 2009, was set to expire at the end of 2010. As a part of the extension of the Bush Tax Cuts, the $230 monthly limit was extended to December 31, 2011.
In addition, the dependent care tax credit limits of employer-related child care expenses that can be taken into account for the child and dependent care tax credit were retained at their current levels of $3,000 for families with one child and $6,000 for families with two or more children.
And last, the maximum annual adoption credit will remain at $13,360 for 2011. It was also set to expire and roll back to $10,000 per year before Congress extended this tax break. The refundable credit starts to phase out at $185,210 of modified adjusted gross income (AGI) levels and is completely phased out when modified AGI reaches $225,210.
I do expect more changes and clarifications as the year progresses, and I’ll keep you updated. Don’t worry if you begin to feel dizzy—it’s just the health care reform roller coaster.
The information contained in this article is not intended to be legal, accounting, or other professional advice. We assume no liability whatsoever in connection with its use, nor are these comments directed to specific situations.
