You need to know:
Beginning in 2011, HSAs and FSAs may no longer be used to purchase over-the-counter (OTC) medications, such as non-prescription pain relievers, cold medicines, antacids and allergy medications. Over-the-counter medications prescribed by a physician will still be reimbursable on a tax-favored basis by these plans.
This new rule does not apply to reimbursements for the cost of insulin, which will continue to be permitted, even if purchased without a prescription.
Increased Tax Penalty for HSA for non-qualified usage:
If you use your tax-qualified account to purchase OTC medicines or other drugs purchased without a prescription after 1/1/11, or for other nonqualified withdrawals, those nonqualified expenses will be includable in your gross income and subject to an additional tax of 20%. This penalty increased from 10% to 20%.
Health Care Reform Update 4.2.13 ~~ from Carolyn L Pope