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CARES Act provision creates an opportunity for OTC brands, retailers

Significant changes in the Affordable Care Act might be a boon for mass retailers and the over-the-counter medications section, as well as the CPG companies that operate in this space. 

According to industry information, more than 50 million American families have signed up for either the Flexible Spending Accounts, or FSAs, or Health Savings Accounts, or HSAs — programs designed to help pay for medical and dental expenses that fall outside of traditional health coverage. The plans, developed in the late 1970s, allowed people to set aside a portion of their income into a pre-tax account to be used for healthcare reasons.

The implementation of the Affordable Care Act in 2011 established rules that only reimbursed consumers for OTC drug sales, if purchased with a prescription. In practice, according to a fact sheet supplied to Drug Store News by GSK Consumer Healthcare, that program prevented most people from having the ability to use their FSAs/HSAs to purchase OTC products. Prior to that rule change, about 52% of households with FSA accounts had used those funds to purchase OTC items at retail. 

Yet the 2020 Coronavirus Aid, Relief and Economic Security, or CARES, Act — which passed in Congress and was signed into law by President Donald Trump in late March — changed that rule, expanding the list of items eligible for reimbursement by FSAs and HSAs to include over-the-counter medications, as well as many menstrual products. More than 40 OTC categories are included in this, from acid controllers and acne medications to cough-cold and flu and sleep aids.

GSK Consumer Healthcare’s fact sheet explained that this is a permanent change, with no expiration date on this law. 

One caveat is that the accounts have a “use it or lose it” provision, meaning the funds an employee contributes to the account must be used within the calendar year or be forfeited.

The fact sheet also explained that the average American household spends nearly $5,000 per person on out-of-pocket healthcare expenses and insurance premiums. It stated that the average domestic household spends almost $450 per year on OTC products. Using the two programs to purchase OTC products could save an average household in excess of $100 annually.

The fact sheet noted that Americans lose as much as $400 million annually in forfeited FSA balances.

Retailers and suppliers could be big winners in this new change. The fact sheet pointed out that as more consumers see the advantage of these programs, retailers could see a fast uptick in sales. That growth could increase as consumers near the end of the year and realize that they must use the money in the accounts or lose those sums. 

Some merchants already have noticed a difference, even in just the four or five months after implementation of the rule changes, which were retroactive to the beginning of the year. Several retailers told Drug Store News that they have been asked numerous questions about the rule changes from shoppers who remain confused about how the programs work and how they can purchase products. 

“We are getting a lot of questions from shoppers who simply don’t understand what they can spend and how much money they have to spend in their accounts,” said one merchant in New Jersey. “They are asking us the questions and we have to have the answers for them, or it is potential lost sales from people who are not only eager to purchase OTC products, but have to or they will lose the money.”

Another retailer said that his chain was adding signage to make it clear that consumers can use the FSA/HSA debit cards at his stores. “Sometimes the shoppers don’t know how to use these cards,” he said. “It hurts them and it hurts us, too.”

Interestingly, the fact sheet suggested that “retailers and manufacturers find new ways to support year-round communication with shoppers to ensure that the benefits of using these accounts stay top of mind with each shopping trip.” Retailers can help shoppers understand what has changed, tell them who is eligible and how to use their benefits, according to the fact sheet. 

It also suggested that retailers connect with shoppers digitally, and when they are in store to use signage and other methods to engage the shopper and get her to visit key categories. It also is important for the retailer to show shoppers how easy it is to use their benefits and to make sure that they take the FSA/HSA debit cards in store and online.

“There is a real opportunity to be an ally to shoppers as they navigate through these uncertain economic conditions and express a heightened need for value,” according to the fact sheet.

Make the benefit tangible to them by helping them calculate the savings they will get by using their FSA/HSA benefits on these product categories.
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