drugstore.com, inc. Announces New Online Program to Simplify Use of Flexible Spending Accounts.

Business Editors/Health/Medical Writers

BELLEVUE, Wash.--(BUSINESS WIRE)--Nov. 24, 2003

Recent IRS Ruling Allows Consumers To Obtain

Reimbursement for OTC Medicines through FSAs 

drugstore.com, inc. (Nasdaq:DSCM), the leading online retailer of health, beauty, wellness, personal care, and pharmacy products, today announced its new FSA Manager program. The program will automatically track purchases of products eligible for flexible spending account (FSA) reimbursement, and will provide an Internal Revenue Service (IRS)-approved receipt or electronically submit receipts to a customer's FSA administrator.

"drugstore.com, inc. has taken a huge step in helping simplify the use of FSA programs for consumers," said Kal Raman, president and CEO of drugstore.com, inc. "We will tag those over-the-counter (OTC) products most likely to be eligible for reimbursement by FSA programs. And to help eliminate the tedious paperwork for consumers, we will keep track of FSA-eligible purchases and provide customers with receipts to submit to their FSA administrators."

FSAs allow consumers to take pre-tax dollars from their paycheck and deposit those dollars in an FSA with their employer. Consumers then submit receipts for health-related expenses for reimbursement, up to a specific amount set by the employer under IRS regulations. FSAs are financially advantageous for consumers because pre-tax dollars are used to pay for health care-related expenses. For example, a person in a 33 percent tax bracket would save $660 in federal taxes if he received $2,000 in reimbursement through a FSA.

One disadvantage of an FSA is that it is "use it or lose it," which means that a person will lose any amount deposited in an FSA for which the person does not incur eligible expenses by the end of the year or does not submit receipts by the deadline. More importantly, the sheer difficulty of keeping track of hundreds of receipts for small purchases deters many consumers from using the money-saving FSA programs. According to the Employers Council on Flexible Compensation (ECFC), approximately 22.5 million workers have access to FSAs, but only 20 to 30 percent of those (approximately 4.5 to 6.8 million workers) participate.

The value of FSA programs was greatly enhanced in September 2003 when the IRS added certain OTC medicines to the list of products eligible for coverage under FSA programs (IRS Revenue Ruling 2003-102). Under the new IRS regulations, OTC products are reimbursable if they are used to alleviate or treat personal injuries or sickness and are generally accepted as falling within the category of medicine or drugs. Examples include cough, cold and allergy products, antacids, antifungals, pain relievers, and first-aid products. Dietary supplements, including vitamins, minerals, herbals, and botanicals, are covered when used to treat a current illness, but not when used for general health purposes. Consumers should note that, although the IRS sets the guidelines for deductible medical expenses, individual employers have the final determination of which expenses are covered by their FSA programs.

drugstore.com, inc. is currently working with FSA administrators to implement the FSA Manager, and anticipates that the FSA Manager program will be functional by January 1, 2004. Upon launch of the FSA Manager, consumers will be able to obtain a receipt for all FSA-tagged products purchased through the drugstore.com(TM) online store. Because the receipt will include all FSA-eligible products purchased through December 31, 2003, customers will be able to take advantage of any dollars left in their FSAs for 2003. In the future, the drugstore.com(TM) Web site will offer customers the option of having receipts for eligible FSA purchases submitted directly by drugstore.com, inc. to the customer's FSA administrator, eliminating the hassles and paperwork for the consumer.

About drugstore.com, inc.

drugstore.com, inc. (Nasdaq:DSCM) is "Your Health & Beauty Superstore" and the leading online health, beauty, wellness, personal care, and pharmacy solution in the world. The drugstore.com(TM) online store provides a convenient, private, and informative shopping experience that encourages consumers to purchase products essential to healthy, everyday living. The online store offers thousands of brand-name personal health care products at competitive prices; a full-service, licensed retail pharmacy; and a wealth of health-related information, buying guides, and other tools designed to help consumers make informed purchasing decisions. Consumers can personalize their shopping experiences with shopping lists, e-mail reminders for replenishing regularly used products, and private e-mail access to pharmacists and beauty experts for questions.

drugstore.com, inc. has been awarded the Verified Internet Pharmacy Practice Sites (VIPPS) certification by the National Association of Boards of Pharmacy (NABP) as a fully licensed facility exercising competent, safe pharmacy practices in compliance with federal and state laws and regulations.