May 15, 2024
HSA and FSA Pre-Reading Guide: An Introduction for SaaS providers in HealthTech
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.
Note:
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.
The Department of Health & Human Services published definitions for common accounts. Via the Healthcare.gov 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
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.
The end consumer who purchases the product or service.
The merchant or service provider.
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.
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.
Essentially, this is the financial institution where the funds remain. They issue you an account/card to access your funds.
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.
For a business or organization to accept HRA and FSA cards for payments, they must offer eligible products and services.
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.
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.
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.
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:
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.