Pay Theory Blog
May 15, 2024

HSA and FSA Pre-Reading Guide: An Introduction for SaaS providers in HealthTech

Getting Started: What to Expect

Reading this overview will help you get started with HSA and FSA acceptance. It will be especially helpful if you are a software platform serving healthcare industries like online pharmacies, telemedicine, senior care, and others. 


There are a fair amount of acronyms and industry jargon in this space. At the end of this article, we’ve included a section to expand on the terms for you to reference.


There are lots of moving parts when supporting HSA and FSA payments in your software/platform. Here are key takeaways for you to understand.

  1. The IRS determines what healthcare services and products are eligible for cardholders to purchase with an FSA or HRA card. HSAs can be more flexible from a SaaS perspective but require diligent tracking from the cardholder.
  2. Product and business eligibility for accepting an FSA and HRA is determined by the type of business (merchant category code).
  3. The Special Interest Group SIGIS is responsible for the development and management of an industry standard to meet IRS requirements
  4. Getting started with an HSA card tends to be simpler than FSA/HSAs for SaaS platforms to accept because an HSA card can technically be used anywhere regardless of whether the products are eligible (note: this will likely incur taxes or penalties for the cardholder). 
  5. Plan administrators determine the requirements for how FSA, HRA, and HSA debit cards can be used.
  6. Special setup is not required for healthcare-defined merchants (Doctors, Dentists, Urgent Cares, Vision Centers, etc) to accept health benefit cards. Comparatively, businesses like supermarkets, discount stores, and convenience stores that sell eligible products need to implement an (Inventory Information Approval System) IIAS to accept FSA/HRA cards.

Getting Started 

What is a Health Benefit Card?

The Department of Health & Human Services published definitions for common accounts. Via the website, they define HSA, FSA, and HRA as follows:

A Health Savings Account (HSA) is “a type of savings account that lets you set aside money on a pre-tax basis to pay for qualified medical expenses.” 

A Flexible Spending Account (FSA) is “an arrangement through your employer that lets you pay for many out-of-pocket medical expenses with tax-free dollars.” FSAs give you a year to use up the funds (Note: you can carry over up to $640 to spend the next plan year).

A Health Reimbursement Arrangement (HRA) is an “account-based health plans that employers can offer to their employees. They reimburse employees for their medical expenses.” These funds can be rolled over from year to year and are owned by the employer

How Do They Affect You as a Software Platform?

If your customers (businesses or organizations) offer healthcare products or services, they will likely want to accept health benefit cards as a payment method. The IRS requires HRA/FSA cards to be used only as specific MCCs. These include health care, physicians, dentists, vision care offices, hospitals, and other medical care providers. If an HRA/FSA card is used at your merchant without an IRS-approved merchant category code (MCC), they must implement an Inventory Information Approval System (IIAS). An IIAS is a system that identifies eligible items based on the UPC. 

If none of these requirements are met, the transaction must be declined. 

HSA benefits cards work like a traditional debit card. They will be approved across all merchant category codes. This makes it easier for software platforms to accept HSAs as a method of payment. To pay for health expenses with your Health Savings Account (HSA), you can use the HSA's debit card, write a check, or transfer the money online. If you prefer, you can also pay out-of-pocket and then pay yourself back from your HSA later. The cardholder needs to keep all receipts and records of HSA payments because they need them for taxes.

Everyone Involved


The end consumer who purchases the product or service.


The merchant or service provider.

Software Platform

This is where you sit, creating software connecting the cardholder to the product/service provider.


This is where Pay Theory sits, building compliant payment flows behind the scenes for you to embed into your platform.


This is the non-profit organization that sets industry standards for complying with IRS regulations.

Card Networks

Think of card networks as the wires connecting all banks to move funds around. Among those certified by SIGIS are Visa, ACCEL, Mastercard, and Star Network.

Issuer Processor

Essentially, this is the financial institution where the funds remain. They issue you an account/card to access your funds.

Plan Administrators

They manage the substantiation of claims. In short, they verify the funds were used appropriately. This is typically done with a receipt/bill which includes the product, date of purchase, and amount. 

Determining Eligibility

For a business or organization to accept HRA and FSA cards for payments, they must offer eligible products and services. 

Eligible Merchant Category Codes

There are two ways to accept HRA/FSA cards. The first is through MCC eligibility. Eligibility for Merchant Category Codes is determined by the IRS but can be restricted further by the plan administrator. The IRS states that “the card’s use is limited to physicians, pharmacies, dentists, vision care offices, hospitals, and other medical care providers.” These businesses will not require registration with SIGIS to become eligible to accept these payments.

90% Registration

The second way is by being a pharmacy that satisfies the 90% rule. The IRS states that “90 percent of the store’s gross receipts during the prior taxable year consisted of items which qualify as expenses for medical care.” The 90% rule allows a merchant to accept FSA and HRA cards under the IRS guidelines. You can do this by registering through SIGIS. Keep in mind that this only applies to drug stores. 

Inventory Information Approval System (IIAS)

For businesses that sell healthcare-eligible products but fall outside of the business types mentioned above, they can still accept HRA/FSA by implementing an IIAS. An IIAS combines inventory management and point-of-sale systems. For example, a grocery may sell produce, flowers, over-the-counter drugs, etc. The IIAS needs to be able to identify which items at the grocery store can be purchased with an HRA/FSA card and which ones cannot. 

Eligible Products and Services

Generally speaking, products and services prescribed by medical practitioners are eligible for use. The IRS outlines those for the public. With the passing of the 2020 CARES Act, many new items and categories are now eligible without a prescription too. This includes a lot of over-the-counter medication. 

Here is an overview of qualified medical expenses from the IRS. You may be surprised with some of the items included. Here are a few that show the breadth of coverage:

  • Operating expenses for a car
  • Weight-loss programs
  • Veterinary fees
  • Contact Lenses
  • Capital Expenses (special equipment installed in a home)
  • Long-Term Care
  • Nutritional Supplements (when recommended by a medical practitioner)

Closing Thoughts

After reading this, if your platform can and should accept HSA and FSA, contact Pay Theory to get into the minutiae. We are always eager to help platforms where we can.