What Potential Health Savings Account Expansions Mean for Employers

In 2011, the federal government prohibited workers from using their tax-advantaged medical savings accounts to buy most over-the-counter (OTC) drugs—from aspirin to cold medicine—unless they had a doctor's prescription for those medications. However, that could soon change.

In July, the U.S. House of Representatives passed the Restoring Access to Medication Act, which would permit workers to use their flexible spending accounts (FSAs), health savings accounts (HSAs) and health reimbursement arrangements (HRAs) to buy OTC medications without a prescription.

The bill would reverse a 2011 provision of the Affordable Care Act that banned the use of medical savings accounts to purchase most OTC drugs, though it still allowed certain OTC medical supplies—such as bandages and crutches—to be purchased with those accounts without a prescription. The OTC drugs that currently require a prescription include allergy medication, baby rash ointments, and sleep aids. (Read a more thorough explanation of the current rules from the IRS.)

If passed and signed by the President, this bill would re-allow the purchase of OTC drugs using medical savings accounts retroactively to January 1, 2016.

"The usability of HSAs and FSAs is not a small issue, and these accounts have lost some of their usefulness under the [ACA], but my bill would fix that, helping tens of millions people in the process," Rep. Lynn Jenkins, R-Kansas, wrote in The Hill.

Beyond allowing for the purchase of OTCs without a prescription, the bill would also make other changes to improve the value of HSAs, such as doubling the annual contribution limit.

The Odds of Passage

It's still unclear, however, whether the bill has enough support to pass through Congress. The bill has been referred to the Senate Finance Committee, which has yet to take action on it. President Barack Obama has said he would veto the bill, arguing that it's another attempt by Republicans to dismantle a piece of the ACA.

The Obama administration claims that the bill would only provide more tax breaks to high-income individuals, who tend to be the biggest funders of medical savings accounts, while also hindering an attempt to lower the overall cost of medications, according to Modern Healthcare.

A 2015 study by the Congressional Budget Office found that letting people use tax-advantaged health care savings to buy all OTC drugs again would reduce tax revenue by $6.6 billion.

Guidance for Employers

At this point, it's unclear whether the bill can muster support from the Senate and the President to become law. However, employers should be prepared to communicate any changes to their employees if it does get enacted. In such a case, FSAs, HSAs, and HRAs could become more valuable to employees because they will be able to use them to buy OTC drugs without a prescription—which effectively could help encourage workers to sign up for health plans that offer such savings accounts.

Some employers already actively encourage their employees to use up their FSA dollars each year, since that unused money typically expires on December 31 (or March 15, in some cases). If OTC drugs are again allowed to be purchased with such accounts, employers can further encourage their workers to use up those dollars by year-end through the purchase of non-prescription OTC drugs, whether it's aspirin or allergy medicine.