OTC medicines and menstrual care products.
Since the CARES Act, over-the-counter medicine and menstrual care products count as medical care for HSAs, health FSAs and HRAs. Employers still need to confirm what their own plan document allows.
What changed.
OTC Medicine Without A Prescription
IRS Publication 969 says over-the-counter medicine, whether or not prescribed, is treated as medical care for health FSAs and HRAs for amounts incurred after 2019, and for HSAs for amounts paid after 2019. Whether a particular FSA or HRA reimburses them still depends on the plan document.
Menstrual Care Products
The tax code now defines a menstrual care product as a tampon, pad, liner, cup, sponge, or similar product used with respect to menstruation or other genital-tract secretions, and treats it as medical care. Ask a tax adviser or counsel how the definition applies to your plan’s reimbursement rules and list of eligible items.
Which Accounts
The change reaches HSAs, Archer MSAs, health FSAs and HRAs. Employers that offer more than one of these accounts should check each one separately, since each has its own governing document and rules. Review how each account’s materials describe eligible expenses so they match across all of them.
Plan Terms Still Control
What an FSA or HRA actually reimburses depends on the plan document, so the document should reflect any items the employer chooses to cover. If the employer intends to reimburse these items, confirm that the plan terms and the administrator’s practices say so, and ask counsel or the plan’s document provider about wording.
What plan sponsors can do.
Check The Plan Document
Confirm the document lists OTC medicine and menstrual care products if you intend to reimburse them. Amend it in writing if not. Date the amendment and keep it with the plan records, and ask counsel or the document provider whether any timing or notice steps apply.
Tell Your Administrator
Make sure the claims administrator and debit card system use the same eligible expense list. Ask them to confirm in writing which items are coded as eligible at the point of sale and on claims, and to tell you when their list changes. Test a few common purchases before the plan year starts.
Update Employee Materials
Enrollment guides and FAQs should describe what is eligible, so employees use accounts correctly. Cover the change in the enrollment guide, the FAQs and any reminder sent near year end, and explain which expenses need a receipt or other documentation when a claim is made.
Keep Substantiation Rules
Reimbursements still need substantiation under the plan’s procedures. Keep receipts or itemized statements available for claims that need them, and apply the same review process to every claim. The administrator can explain what documentation it will accept, and the employer should keep records consistent with the plan terms.
Three questions to settle.
Does Our Plan Cover Them
Check both the document and the administrator’s system. Look at whether the plan document lists these items, whether the administrator’s eligible expense list matches it, and whether the debit card is set up to accept them. If they do not line up, resolve it before employees start spending.
Is Our Employee Guide Current
Old guides may still say a prescription is required. Update the eligible expense list, the enrollment guide and any intranet page so employees are not told to get a doctor’s note they no longer need. Ask employees what questions they still hear, and answer them in the next communication.
What About Other Items
Other products follow the general medical care definition. Ask your advisor before expanding the list. Items outside the new definitions are judged case by case, so keep a short written record of how a decision was reached and who made it, and confirm with a tax adviser before treating a new category as eligible.
What Counts As A Qualified Medical Expense
Section 213(d) Is The Standard
Qualified medical expenses are amounts paid for medical care under section 213(d) for the account beneficiary, spouse and dependents.
Not Covered By Insurance
The expense counts only to the extent it is not covered by insurance or otherwise reimbursed.
Medicines And Drugs
The current statute no longer limits qualified medicines to those prescribed by a physician. An earlier prescription requirement was replaced in 2020.
Menstrual Care Products
Amounts paid for menstrual care products are treated as paid for medical care. The statute lists tampons, pads, liners, cups, sponges and similar products.
Premiums Are Mostly Excluded
HSA funds generally cannot pay insurance premiums, with exceptions such as continuation coverage, long term care insurance and coverage while receiving unemployment compensation.
Other Spending Is Taxable
Amounts not used for qualified expenses are included in gross income and carry an additional 20 percent tax, with exceptions for disability, death and Medicare age.
Source: 26 U.S.C. 223.
Common Questions About OTC Reimbursement
Do employees need a prescription for OTC medicine?
Not under the tax rules. The IRS says OTC medicine counts as medical care whether or not it is prescribed.
Does this apply to HSAs?
Yes. HSA distributions for OTC medicine and menstrual care products can be qualified medical expenses for amounts paid after 2019.
Does a dependent care FSA cover these items?
No. These changes relate to medical care accounts, not dependent care.
Does the employer have to add them to the plan?
The plan document governs what an FSA or HRA reimburses. Ask your advisor about your plan.
Does it change contribution limits?
No. It changes which expenses qualify, not the limits.
Is this legal advice?
No. For your plan, involve your counsel or tax advisor. We can help you review your plan document and questions.
Send us your renewal.
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Laws and rules referenced
26 U.S.C. § 213(d) — Definition of medical care expenses, including over-the-counter medicines and menstrual care products.
26 U.S.C. § 223 — Health savings accounts: eligibility, contribution limits and the age 55 catch-up.
This page is general information, not legal or tax advice. Rules change and facts matter, so confirm your situation with counsel or a qualified advisor.
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