Targeted email to UM Faculty and Staff, September 12, 2003

The Treasury Department and the Internal Revenue Service (IRS) recently ruled that certain non-prescription drug expenses may be reimbursed from pre-tax health care dollars contributed by an employee to a Health Care Flexible Spending Account (FSA).

Faculty and staff members currently enrolled in a FSA may take advantage of the expansion of the eligible expenses immediately and eligible employees not currently participating should consider this new information when deciding on FSA participation during this year’s Open Enrollment period, October 1 - 24. U-M will change its current FSA eligible expenses list to include over-the-counter (OTC) medications purchased on or after September 3, 2003. The Benefits Office will communicate further changes or restrictions as they develop.

Eligible Expenses
The new IRS ruling (Rev. Rul. 2003 – 102) allows reimbursement for over-the-counter medications, tax-free (Federal) when the OTC product is used for medical purposes. The new ruling addresses the increased number of drugs available on an over-the-counter basis and provides consumers savings on some drugs that were formerly covered under a prescription drug plan. Examples of commonly purchased over-the-counter medications that now qualify include, but are not limited to:

• Claritin, Loratadine, and other allergy medicines/eye drops
• PrilosecOTC and other OTC heart burn medications (e.g., Zantac, Tagament, and some antacids)
• Over-the-counter medications for yeast infections, contraceptive products with a drug ingredient
• Smoking cessation products, dental treatment (e.g. Orabase B)
• Pain relievers and sleep aids (e.g. acetaminophen, ibuprofen, diphenhydramine)
• Cold medicines, cough syrups (e.g. Nyquil, Triaminic, Pedia-Care)
• Topical antibiotics (e.g. Triple Antibiotic Ointment, Bacitracin)
• Topical Steroids (e.g. Hydrocortisone cream)

Ineligible Expenses
Reimbursement is not permitted for OTC products that are not medicines, drugs or merely benefit the general health of an FSA participant. These include:

• Cosmetic products (e.g. face creams, etc.)
• Toiletry products (e.g. toothpaste, mouthwash, deodorant, shampoo, etc.)
• Dietary Supplements (e.g., vitamins, fiber, minerals, and nutritional supplements such as Ensure, Glucerna, Slim Fast, etc.)
• Herbal supplements

By using pre-tax dollars in a U-M health care flexible spending account, participants can save considerable out-of-pocket cost -- up to one-third net savings depending upon their tax bracket. The claim requirement will be a register receipt with date of purchase, product name and price. U-M faculty and staff members can enroll in or renew their FSA enrollment during Open Enrollment (October 1-24).

More information on FSAs and reimbursement eligible expenses can be found on the Benefits Office Web site at: www.umich.edu/~benefits/plans/reimburse/index.htm, and from SHPS, the U-M FSA claims processor. Visit the SHPS Web site at www.myshps.net, or call SHPS Customer Service toll free at 1-800-678-6684.