2003_1105.special_packet - Laserfiche WebLink

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lip Date: 1115/03 Item umber: Department Approval Manager Approval Agenda section Item Description: � III �; �_; r ,�_i•i � ��_i Background Consent On Sept. 3, 2003, the Internal Revenue Service (IRS) and the Treasury Department released revenue Ruling 2003-102, which clarifies that aver - the - counter drugs can now be reimbursed (if properly substantiated) through an employer-sponsored flexible spending account or health reimbursement arrangement. A flexible spending account allows employees to set aside pre -tax dollars to pay for qualified medical expenses for themselves or eligible dependents. Items that are available for reimbursement must be considered a "medicine or drug." Antacids, allergy medications, pain relievers and cold medicines were listed as acceptable "medicines or drugs. }" The ruling noted that toiletries, cosmetics, and sundry items do not meet the definition of "medicines or drugs} so they do not qualify for reimbursement. An item that is merely beneficial to the overall health of the individual (i.e., vitamins) also does not qualify for reimbursement. The new revenue ruling does not change the existing law# rather it is a new interpretation of the law. }Therefore, although no effective date was specified for the new ruling, it appears that the change would tale effect immediately for the current plan year (luck to the first day of the plan year). Thus allowing employees greater flexibility in how their 2003 accounts may be used. Policy oh i ectiycs In reviewing the wording in the city's plan document it was found that it does not specifically exclude nonprescription drugs. Thus, as a matter of interpretation, the City may rely on the new IRS ruling and allow for reimbursement of these expenses. With allowing for the new interpretation employees may now see greater tax savings by putting more into the flex account to cover these over the counter medical expenses. Thus, it would make sense to increase the allowable cap on this account to allow for this additional savings. The current allowable health spending cap of $3,120 has been in place since the cafeteria plan document was put into plane on January 1, 1994. This account has not received an increase over the years and out of pocket expenses for health care have rapidly increased. Now this new IRS interpretation has added even more pressure to increase the allowable amount to $5,000 in order to keep up with marketpb1ce changes and allow employees and the City the greatest level of tax savings. The plain, document would have amencbment number two added to it which is enclosed for your review.