Hatcher stated, “More than 68 percent of supermarkets have pharmacies, and both pharmacy, and OTC products represent an important component of our overall health and wellness offerings. Our members accept a variety of payment types for the purchase of OTC products. Until January 1, 2011, when purchases for Flexible Spending Accounts (FSA) OTC medicines were cut off for customers using an FSA debit card without a prescription, FMI members were seeing growth in the use of debit cards to make purchases with an FSA.”

Hatcher gave a brief history of the grocery industry’s work to ensure they were compliant with the Internal Revenue Service’s (IRS) guidance on FSAs, which required members of FMI and other retailers to develop and implement an Information Inventory Approval System (IIAS) if they wished to be able to continue to accept FSA debit cards for purchases.

Hatcher said, “The FSA business increased as customers, merchants and the IRS seemed to be happy with this new system. It was consistent, efficient and accurate and was created without a single taxpayer dollar.” Still, she relayed the frustrations among food retailers who met the IRS requirements of obtaining a list of eligible FSA items, developing an integrated flagging system for eligibility and then retaining the data for IRS audits – only to have IRS change the program on March 23, 2010 in an attempt to raise revenue for the healthcare law, the Patient Protection and Affordable Care Act (PPACA).

“Our members are in the business of selling food and other retail products. As you can imagine, developing a system as complex as IIAS was an enormous task,” Hatcher noted.

Indeed, in addition to the logistics, the costs incurred to be compliant were also hefty, as Hatcher explained how she reached out to FMI members for input on IT costs invested in an IIAS system: “Each respondent reported more than $100,000 in expenses. In government dollars that may not seem like a lot, but with a 1 percent industry profit margin, that equates to more than $10 million in grocery sales just to break even on the expense. Our largest members reported numbers far in excess of $100,000.”

In conclusion, Hatcher argued, “The elimination of FSA OTC purchases is basically a new tax on consumers who previously could put aside pre-tax dollars to pay for health-related items throughout the course of a year. Moreover, in our opinion, the provisions in PPACA that took away this benefit will not reduce overall health care costs, but will simply shift these costs to other areas of our health care delivery. FMI urges the restoration of this important OTC tax-preferred health account benefit.”

Hatcher testified with three other witnesses, including Scott M. Melville, president and CEO, Consumer Healthcare Products Association; Dr. Joel M. Feder, D.O., F.A.C.O.F.P., Captain MC, USN (Ret.), American Osteopathic Association; Steven Taylor, CEO, Sjogren’s Syndrome Foundation; and Paul N. Van de Water, senior fellow, Center on Budget and Policy Priorities.

For Media:

To view a live webcast of the committee hearing, visit here.

To read Hatcher's full testimony, visit here.

Legislation to fix limitations on FSA debit card OTC purchases include: H.R. 2010 – the Family and Retirement Health Investment Act of 2011; and H.R. 605 - the Patients’ Freedom to Choose Act; and H.R. 2529, the Restoring Access to Medication Act

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