2010/2011 HSA Law Changes and HSA Forms Changes
Date: December 2010
Subjects: (1) 2010/2011 HSA Law Changes and HSA Forms Changes
(2) 2010/2011 HSA Amendments
We revised our HSA plan agreement forms in May of 2010 to incorporate the HSA law changes made earlier in March of 2010. The IRS recently issued additional guidance, IRS news release 2010-95, Notice 2010-59 and Revenue Ruling 2010-23. We have again revised these forms.
An HSA custodian will want to use HSA plan agreement forms with a revision date of May 2010 or later for HSAs opened in 2011. If you have our HSA FormSystem, updated forms will be furnished by December 23, 2010. Although it appears the IRS will not be requiring an HSA custodian to furnish a 2010/2011 HSA amendment, we recommend you do so. HSA owners should be informed of the following law changes and that the 2011 HSA limits are the same as the 2010 HSA limits.
Section 9003 of the Patient Protection and Affordable Care Act was enacted on March 23, 2010. It revised the definition of medical expenses as it relates to over-the-counter drugs or medicines. It is generally effective as of January 1, 2011. An HSA distribution used to pay for a medicine or drug is a tax-free qualified medical expense only if (1) a prescription is required for the medicine or the drug, (2) a prescription is not required for a medicine or a drug since it is an over-the-counter drug or medicine, but an individual still obtains a prescription, or (3) it is insulin. However, an HSA distribution (i.e. a reimbursement) made with respect to over-the-counter drugs without a prescription, after December 31, 2010, will still qualify as a qualified medical expense, if the over-the-counter drugs or medicines were purchased or bought before January 1, 2011.
For purposes of meeting the requirement that an HSA owner must obtain a prescription for an over-the-counter drug, a“prescription means a written or electronic order for a medicine or drug that meets the legal requirements of a prescription in the state in which the medical expense is incurred and that is issued by an individual who is legally authorized to issue a prescription in that state.”
The requirement to obtain a prescription was not extended to medical items or equipment. This prescription requirement only applies to over-the-counter medicines or drugs. A withdrawal of HSA funds used to purchase equipment such as walkers and crutches, supplies such as bandages and braces, and diagnostic devices such as blood sugar test kits do not need a prescription in order to qualify as a qualified medical expense. Such medical items or equipment will qualify as medical care if the definition set forth in Code section 213(d)(1) is met. Such medical care includes expenses for the diagnosis, cure, treatment, mitigation, prevention of disease, or for the purpose of affecting any structure or function of the body. However, expenses for any item which is merely beneficial to a person’s general health are not medical care expenses.
Unless an individual is age 65 or older, is disabled, or is a beneficiary, the withdrawal of HSA funds after December 31,2010 for non-qualified medical reasons, will subject the recipient to a 20% excise tax. There is a 10% excise for such distributions occurring in 2010.
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