Can I Use My FSA Card for Prescriptions?

A Flexible Spending Account (FSA) is an employer-sponsored benefit allowing individuals to set aside pre-tax money from their paycheck for qualified healthcare expenses. This reduces taxable income, making healthcare more affordable.

FSA Eligibility for Prescriptions

Prescription medications are qualified medical expenses under Internal Revenue Service (IRS) guidelines, making them eligible for FSA reimbursement. Funds allocated to an FSA can be used to pay for prescription drugs. This allows individuals to pay for necessary medications with pre-tax dollars.

Specific Types of Covered Prescriptions

Beyond standard prescription medications, other prescription-related items also qualify for FSA use. Any drug requiring a doctor’s prescription, whether brand-name or generic, is eligible. Insulin is eligible for FSA reimbursement even without a doctor’s prescription. The Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 broadened FSA eligibility to include many over-the-counter (OTC) medications and products without a prescription. Prescribed medical devices and supplies, such as Continuous Positive Airway Pressure (CPAP) machine accessories, blood glucose test strips, or other diagnostic supplies, are also covered by FSA funds.

Using Your FSA Card for Prescriptions

Using an FSA debit card for eligible prescription purchases is a straightforward process. When purchasing prescriptions, you can swipe your FSA card at the point of sale (POS) terminal. Many merchants, especially pharmacies, utilize an Inventory Information Approval System (IIAS) that automatically identifies and approves eligible healthcare items at checkout.

This system helps ensure that only qualified expenses are paid directly from your FSA. If a transaction includes both eligible and ineligible items, the IIAS may process the eligible portion on the FSA card and require a different payment method for the remainder. If your FSA card is declined for a seemingly eligible item, verify your FSA balance or contact your plan administrator, as reasons for decline can include insufficient funds or an inactive card.

Documentation and Card Issues

Maintaining meticulous records is important, even when using an FSA card that auto-approves purchases. FSA administrators may sometimes request substantiation for transactions, particularly for larger amounts or if the merchant does not fully support IIAS. Acceptable documentation includes itemized receipts, Explanation of Benefits (EOB) statements from your insurer, or a copy of the doctor’s prescription.

Should your FSA card be declined for an eligible prescription, you can pay using an alternative method, such as a personal debit or credit card. Afterwards, you can submit a manual claim for reimbursement to your FSA administrator. This process involves completing a claim form and attaching the required itemized receipts or other supporting documentation.

It is important to use FSA funds only for qualified medical expenses. Using an FSA card for ineligible purchases can lead to compliance issues. If an expense is determined to be ineligible, the IRS may consider the reimbursed amount as taxable income and could impose a 20% tax penalty, requiring repayment of the funds to the plan.