Top 6 Reasons to Accept HSA Cards and FSA Cards

Here are some top reasons eligible businesses and platforms should consider accepting HSA and FSA payments.

1. Growing annual spending on healthcare and childcare: In 2022, healthcare spending in the U.S. hit $4.5 trillion. By 2025, healthcare expenses are expected to total 20.1% of the U.S. GDP.

Childcare expenditures are growing as well–and some childcare costs can qualify as FSA and HSA payments. In 2022, Americans spent a total of $61.7 billion on childcare. Spending is expected to grow at a compound annual growth rate (CAGR) of 4.18% from 2024 to 2030. Accepting HSA and FSA cards can help you capture untapped payments revenue.

2. Higher contribution limits: Both HSA and FSA now have higher limits. For 2024, contributions for HSAs are now $4,150 for individuals and $8,300 for families, up from $3,850/$7,750 in 2023. FSA increased from $3,050 to $3,200. Higher contributions lead to lower tax burdens and encourage HSA and FSA card usage.

3. Alternative payment methods are growing in popularity: 11% of consumers abandon purchases when their preferred payment method isn't available (Statista). As more people use HSA and FSA cards, not providing this payment method could have a bigger impact on abandoned purchases.

4. Grow customer base and loyalty: Accepting health and flex spending cards can help create stickier patients or customers. Almost 72 million Americans had HSA in 2022, up from 67 million in 2021. The Bureau of Labor Statistics approximates that 71% of government and 43% of private employees had FSA in 2021.

5. New market segments: HSA and FSA cards expand your target addressable market (TAM). Furthermore, most healthcare facilities and practitioners will only work with a payment provider that supports HSA and FSA.

6. New revenue opportunities: Platforms that process payments for other businesses have additional revenue opportunities.

Accepting HSA and FSA cards is typically restricted to licensed medical service providers, drug stores, and pharmacies. However, other businesses can process HSA and FSA transactions under certain conditions.

Licensed medical service providers and suppliers

The obvious use case for accepting HSA/FSA payments is for licensed healthcare providers and licensed medical suppliers. While customers can file for reimbursement if these payment methods aren’t available at the time of visit, this creates a lot of friction and can lead to higher patient churn rates.

With the average churn rate for healthcare providers falling around 48%, accepting HSA and FSA can help encourage repeat visits. Some examples of providers that would benefit from accepting HSA/FSA payments are:

• Hospitals

• Doctor offices

• Dental offices

• Chiropractors

• Optometrists

• Imaging/X-ray facilities

• Medical supply stores

• Pharmacies and drug stores

PayFacs

As payment facilitators (PayFacs) process payments on behalf of other businesses, it’s vital to support as many payment methods as possible. If you’re a provider and don’t work with a technology partner that supports HSA and FSA, you’re limiting your customer base and missing out on potential revenue.

Software platforms and online marketplaces

Software platforms and marketplaces that embed payments into their product also benefit from accepting HSA/FSA payments for the same reason as PayFacs. It opens up new verticals and business opportunities.

For example, marketplaces and delivery platforms like DoorDash and Instacart now accept HSA and FSA payments for qualifying transactions. Uber also announced plans to add flex spending cards to its payment mix in 2024.

Another use case is management, booking, and billing software that caters to medical or dental providers, suppliers, and childcare facilities.

Retail

While most retail stores can’t process HSA or FSA directly, it is possible if the store meets the requirements. For instance, Walmart accepts HSA and FSA cards for eligible items online and in person.

However, it’s most common for stores to provide receipts for qualifying purchases made in person or online. Some stores like Target, Best Buy, and certain grocery stores sell FSA/HSA qualifying items but can't handle the transactions directly.

Eligibility for accepting health and flexible spending cards can be complicated. Here are some of the high-level factors to be aware of:

SIC codes: For a business to process HSA/FSA payments, its provider must underwrite the business correctly and approve it to operate under a specific Standard Industrial Classification (SIC) code. SIC codes classify businesses by industry for statistical analysis.

Eligible MCCs: Merchant category codes (MCCs) categorize businesses within the credit card processing sector for transaction purposes. Your business must have an eligible MCC or be a platform that accepts payments for participating and qualified merchants to process HSA or FSA transactions.

Reach out to the Finix team for all eligible FSA/HSA MCCs.

90% registration (SIGIS): Special Interest Group for IIAS Standards (SIGIS) oversees compliance and special requirements for healthcare payments. For a merchant to qualify for 90% registration, they must be a drug store or pharmacy and operate under the MCCs 5912 or 5122. The 90% rule means that the merchant’s gross sales are from prescriptions and eligible OTC items.

Inventory Information Approval System (IIAS): If your business carries HSA and FSA-eligible items, and is not a medical service provider or a pharmacy/drug store, you must seek approval and have payment terminals that support IIAS and can identify eligible items.

It’s also important to know that employer plan administrators have the right to decline transactions from self-certified 90% merchants, even on qualified items.

HIPAA compliance for HSA and FSA payments

One of the factors that cause eligible businesses to shy away from accepting HSA and FSA cards is HIPAA compliance. Credit card processing already has rigorous rules and regulations, such as PCI compliance. Naturally, adding another compliance layer may not give business owners the “warm fuzzies.”

That said, credit card processing on its own falls outside of HIPAA. HIPAA comes into the picture only if protected health information (PHI) is stored by you or your payment processor.

Let’s say you are a software company that provides payment processing and electronic record storage for healthcare practitioners. While the healthcare practitioner may need to store PHI, you can pass tokenized information to your payment provider so you’re not storing sensitive personal or protected information.

HSA and FSA cards allow employees to make pre-tax contributions. These contributions can then be used for various qualified expenses. While regulations and requirements are the same when it comes to payment acceptance, there are several differences between how flex spending cards can be used by consumers.

Let’s take a look at the similarities first.

Both offer tax-free contributions and can be used for healthcare-related expenses, including medical co-pays and doctor visits, but neither can be used for insurance premiums. One exception is that HSA cards can be used to pay for Medicare and term-care premiums.

Now, let’s look at the differences.

FSAs are employer-controlled and are only available for employees. Contributions for medical expenses start on the first day of your plan year. Dependent care is accessible as you make contributions, unlike HSAs which cannot be used for childcare-related expenses.

Individuals control HSAs and can use them if they’re self-employed or an employee. HSAs typically require you to have a high-deductible insurance plan, whereas FSAs do not.

Another difference is interest, investments, withdrawals, and rollovers. Unlike FSAs, HSAs let you invest, earn tax-free interest, withdraw (with penalties), and keep funds from year to year. Thanks to the 2020 Cares Act, employers now have the option to allow limited rollovers for FSAs. However, they’re typically use-it-or-lose-it accounts.

Below is an at-a-glance look at the differences between health savings and flexible spending accounts.

HSA and FSA cover common items like prescriptions, medical supplies, and copays. They also cover deductibles, dental care, and wellness visits. In addition, HSA and FSA cover eyeglasses, contacts, and some baby and childcare supplies.

The 2020 Cares Act extended eligibility for telehealth services and expanded eligible items. You can now use HSA/FSA for over-the-counter medicine, feminine hygiene products, and personal protective equipment like face masks, hand sanitizers, and sanitizing wipes.

The Cares Act did not include vitamins and dietary supplements, though in some cases, they can be covered if a doctor prescribes them or finds them medically necessary.

For a more extensive list, visit HealthEquity.

Did you know?: Approximately 75% of Americans support HSA and FSA reimbursement for dietary supplements.

To recap, accepting HSA and FSA is a must for medical services providers and eligible businesses. It can help encourage repeat visits and improve your customer experience by eliminating friction from customers having to submit reimbursements on their own.

It’s also beneficial for PayFacs and software platforms serving or planning to serve the healthcare or childcare verticals. Processing HSA and FSA payments can help your business capture more payments revenue and helps position you more competitively in the healthcare space.

Not all payment processors support HSA or FSA cards, however. So choosing the right payment provider is crucial. Even if you’re not currently in the healthcare space, using solutions that allow you to grow your business and scale when you need to will save you time and money in the long run.