News: CJ Exclusives

CARES Act reverses Obamacare rule, lets people use savings accounts for OTC meds

The coronavirus forced Congress to broaden tax relief for millions of Americans with employer-provided health insurance or high-deductible health plans. They now can buy over-the-counter medications with tax-exempt money from their health savings accounts and flexible spending accounts. 

Congress walked back Obamacare restrictions on health savings accounts and flexible spending accounts when it passed the $2 trillion Coronavirus Aid, Recovery, and Economic Stabilization Act, or CARES Act. HSAs and FSAs let people set aside tax-exempt money for medical costs, reducing their taxable income.

More than one in five workers with job-based coverage have a high deductible health plan with an HSA account, according to the Kaiser Family Foundation. Between 33 million to 38 million Americans have FSAs, to the national nonprofit Employment Benefits Research Institute reports.

Under the Affordable Care Act, Americans could use their HSAs and FSAs to pay for most medical services. But only prescription medication. They couldn’t use the tax benefit for over-the-counter products. 

That changed with the coronavirus. Now, people can use their HSAs or FSAs to buy menstrual products and over-the-counter medications. “This could be a big deal, especially if combined with greater access to drugs,” said John Goodman, Independent Institute senior fellow, who was called “the father of HSAs.” “It would be huge if we took full advantage of the opportunity to make a lot of generic prescription drugs over the counter.”

This is the latest in a series of reforms to high deductible health plans and HSAs. 

The Trump administration lightened regulations with an executive order in June 2019. It cut the red tape that made it illegal for high deductible plans to cover low-cost preventive care for people with chronic conditions who hadn’t met their deductible and had a HSA. 

“The insurer or the employer can pick up some of the costs of care without the employee losing their HSA account,” Goodman said. “Waiving the requirement of an across-the-board deductible was a big move. And now that what’s happening with coronavirus is that we’re extending the idea again.”

The same executive order increased people’s ability to save money in their FSAs — boosting the $500 cap on unused funds that carry over from one plan year to the next. It also opened HSAs to pay for direct primary care and health care sharing ministries.

The coronavirus led Congress to permanently overturn the Obamacare restriction on over-the-counter medications. But some CARES Act reforms could vanish once the pandemic ends. The law only temporarily allows insurers and employers to cover telemedicine if employees haven’t met their deductibles. The executive orders are subject to change under the next president, said Goodman. 

“We’re right now in the middle of a revolution in how health care is delivered in the U.S., and it’s happening very fast,” Goodman said. “One thing we all need to understand is that all the changes that we like are temporary. … When the virus goes away, the freedom to engage in telemedicine also goes away.”