On December 23, 2010, the Internal Revenue Service issued Notice 2011-5, new guidance regarding the use of health FSA and HRA debit cards for purchases of over-the-counter medicines or drugs. Under previously issued IRS guidance (see Ford & Harrison Legal Alert dated 9/8/2010) the IRS indicated that health FSA and HRA debit cards could not be used to purchase over-the-counter medicines or drugs after January 15, 2011, except with respect to "90% pharmacies."

Notice 2011-5 modifies this previously issued guidance. Under Notice 2011-5, the health FSA and HRA debit card purchases of over-the-counter medicines or drugs after January 15, 2011 will be considered fully substantiated at the time and point of sale if the conditions set forth below are met.