CHAMPAIGN – If you use a tax-advantaged account to pay for medical expenses, beware of a change in the law taking effect next year.

Starting Jan. 1, many over-the-counter medical items – among them pain relievers, allergy medicines and diaper rash ointments – will require a doctor's authorization for purchases of these items to be reimbursable through health savings accounts, flexible spending accounts and health reimbursement arrangements.

Under the current law, over-the-counter remedies are reimbursable through these accounts without a doctor's order.

The change is being rolled out under the Patient Protection and Affordable Care Act signed into law this year.

The government hasn't determined yet whether a prescription or just a written authorization from a doctor will be required for over-the-counter drug reimbursements, according to Habeeb Habeeb, president of Benefit Planning Consultants, Champaign.

"We're still waiting for silly little details to the average American," said Habeeb, whose Champaign company administers about 700 of these tax-advantaged health plans around the country.

Some experts project the change will have little effect on most workers with flexible spending accounts that are established by employers – partly because most employees don't take advantage of FSAs when they're offered, and those who do don't use the majority of the money they put into their accounts for over-the-counter medical items.

A recent report by the human resources consulting and outsourcing firm Hewitt Associates showed just one in five employees contributed to a flexible spending account this year and 75 percent of FSA expenses were for medical treatments and prescription drugs.

Habeeb says his company has already begun sending warning letters to clients about the changes coming up next year.

Since flexible spending plans have a use-it-or-lose-it rule for the money workers set aside in their accounts each year, some people can wind up with unused money at the end of the year if they set aside too much. And starting in 2011, they won't be able to use up the leftover money in December on economy-size bottles of aspirin and a stash of allergy drugs for the following year.

Habeeb says flex plans are great, because setting money aside pre-tax for medical need means people can save up to 40 percent on their out-of-pocket health expenses. But he doesn't advocate using a flex plan to run out at the end of the year and buy supplies of over-the-counter remedies.

Rather, his company advises clients to plan for predictable medical expenses and delay the discretionary expenditures, for example, new eyeglasses – until the end of the year. That way, if an unplanned expense, such as a trip to the emergency room, arises, there will be money left in the account to pay for the uncovered share of the bill and the eyeglasses can probably wait until after Jan. 1 of the following year, he said.

In any event, the law will eventually force some workers with big flex accounts to make them smaller.

The next big health care reform-related change for tax-advantaged medical accounts takes effect Jan. 1, 2013, when the money employees can set aside in these plans will be capped at $2,500. Most Benefit Planning Consultant clients have from $3,000 to $5,000 in their annual flex accounts, Habeeb said.

For those families that need more than $2,500 in their accounts, he points out the change in the law will still allow both husband and wife to open their own accounts so the family can accumulate a total of $5,000 in before-tax money for medical expenses for the year.

"Under this new rule, it only says per account. It doesn't say per household," Habeeb said.

The Patient Protection and Affordable Care Act is changing the rules for the kinds of items that can be reimbursed through flexible spending accounts, health savings accounts and health reimbursement arrangements.

What's what with over-the counter items

Starting Jan. 1, many over-the-counter items will require a doctor's authorization for reimbursement, but there are some exceptions built into the law.

Over-the-counter items that will require a doctor's order for reimbursement:

– Acid controllers.

– Allergy and sinus medications.

– Antibiotic products.

– Anti-diarrhea medicine.

– Anti-gas medicine.

– Anti-itch and insect bite remedies.

– Anti-parasitic treatments.

– Baby rash ointments and creams.

– Cold sore remedies.

– Cough, cold and flu medicines.

– Digestive aids.

– Feminine anti-fungal and anti-itch products.

– Hemorrhoid preparations.

– Laxatives.

– Motion sickness medicine.

– Pain relievers.

– Respiratory treatments.

– Sleep aids and sedatives.

– Stomach remedies.

Over-the-counter items to remain reimbursable without a doctor's order.

– Bandages.

– Birth control.

– Braces and supports.

– Catheters.

– Contact lens supplies

– Denture adhesives.

– Diagnostic tests and monitors.

– Elastic bandages and wraps.

– First-aid supplies.

– Insulin and diabetic supplies.

– Ostomy products

– Reading glasses

– Wheelchairs, walkers and canes.

Source: Benefit Planning Consultants Inc.