Benefits Plans - Prescription Drug Plan: Drug Plan Updates and New Drug Releases -
IRS Approves Non-Prescription Drug Expenses for Health Care Flexible Spending Accounts

Page last updated: Tuesday, 14-Sep-2010 15:33:19 EDT

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.

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. 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

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)

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 in the Flexible Spending Account section, and from SHPS, the U-M FSA claims processor. Visit the SHPS website at, or call SHPS Customer Service toll free at 1-800-678-6684.

The University of Michigan in its sole discretion may modify, amend, or terminate the benefits provided with respect to any individual receiving benefits, including active employees, retirees, and their dependents. Although the university has elected to provide these benefits this year, no individual has a vested right to any of the benefits provided. Nothing in these materials gives any individual the right to continued benefits beyond the time the university modifies, amends, or terminates the benefit. Anyone seeking or accepting any of the benefits provided will be deemed to have accepted the terms of the benefits programs and the university's right to modify, amend or terminate them.