News
Shopify Store Success: Grow Your Business by Accepting HSA/FSA Payments
Accepting HSA and FSA payments can be a boon to your Shopify business. Learn how to tap into this $120+ billion market and improve customer experience too.
April 18, 2024
Sam O'Keefe
Co-founder & CEO of Flex
Overview
Overview
Overview
One of the easiest ways you can boost sales on your Shopify store is by accepting Health Savings Account (HSA) and Flexible Spending Account (FSA) payments.
It starts with HSA and FSA holders who want to utilize the tax savings of these accounts. So say users — in 2023, we surveyed 100 consumers who purchased via Flex and found that 62% of respondents stated that the availability of HSA/FSA payment options is “very important” when making a health or wellness-related purchase.
Brands hear this too: we’ve spoken with dozens of health-related Shopify merchants who reached out to us because their customers were asking to use their HSA or FSA. (Typically after first having their card denied at checkout — more on this below.)
Sure, these are anecdotal, but statistically there are a lot more folks where that came from! In fact, HSAs alone cover over 60 million people in the U.S. — just one of a billion reasons you should care.
HSA and FSA fast facts:
$120+ billion market: As of 2024, there is estimated to be over $120B invested in HSA accounts and about $30B for FSAs (for 2020).
Customers want to pay with HSA/FSA: From our survey, 92% of respondents said they would be “very likely” to shop at a merchant again if they offer HSA/FSA payment options.
Increased savings means increased sales: Consumers generally save 30 to 40% on purchases they make with their accounts driving them to spend more on purchases. Among Flex partners, the AOV for HSA/FSA orders are 20% higher than standard ones.
Best of all, it’s a win-win for you and your customer: by accepting HSA and FSA payments on Shopify you can support their wellness journey and help them save money too.
Why You Can’t Automatically Accept HSA and FSA Payments on Shopify
Cutting to the chase: HSA and FSA cards can only be used at medical institutions (i.e., a hospital or dentist's office) and retailers with specific inventory management systems and products that are approved for the Eligible Product List.
That means most consumer health and wellness ecommerce companies are not equipped to accept HSA/FSAs right off the bat.
What’s Required to Accept HSA and FSA Payments
As a brand, it is your responsibility to meet IRS regulations to allow customers to pay with their HSA or FSA. We cover the whole process of becoming eligible in a separate article, but here’s the gist of it:
1) Your product needs to address a specific medical condition: According to the IRS, medical care expenses “must be primarily to alleviate or prevent a physical or mental disability or illness… [and] don't include expenses that are merely beneficial to general health.” They’ve outlined a long list of items and services that are pre-approved for reimbursement with an HSA or FSA.
The caveat is that most consumer-focused health and wellness items don’t initially qualify because they can also be used for general health purposes.
Here’s the catch: the IRS allows doctors and medical professionals to recommend individualized interventions — everything from yoga to fitness trackers to baby monitoring devices — as long as they meet the criteria of diagnosis, cure, mitigation, treatment, or prevention of a specific medical condition.
This is how your item can be covered by HSA/FSA, but it requires the customer to obtain a Letter of Medical Necessity (LOMN) which deems a product or service medically necessary.
If you’d like for your product to become outright eligible (and not require a LOMN), you’ll need to comply with one of the two following criteria as well.
2) You need an appropriate merchant category code (MCC): An MCC classifies the type of goods or services a business offers for tax reporting purposes and are key for payment processing. Items that have a health care MCC will automatically be approved for usage with HSA and FSA payments. However, as a non-health care institution, you're unlikely to be eligible for an MCC that is approved for HSA/FSA usage. You can see a list of some medical MCCs here.
Or
3) You need an IIAS: An Inventory Information Approval System is a validation technology that merchants (ala pharmacies, grocery stores, and ecommerce businesses) are required to have in order to verify that purchases made with an HSA or FSA debit card are for eligible medical expenses. This system reviews the inventory control information (e.g., UPC or SKU number) of the items being purchased against a pre-established list of eligible medical products, and only allows transactions for goods and services on that list.
Shopify Payments Isn’t Set up to Accept HSAs and FSAs
Shopify may be an ecommerce backbone of the internet helping merchants sell to over 700 million customers, however they aren’t currently set up to allow merchants to accept HSA and FSA payments with their internal payment processor, Shopify Payments.
From Shopify itself: “The IRS requires that buyers using an HSA/FSA payment card can account for (substantiate) their spending using the card. Some payment processors offer a service whereby payments can be 'auto-substantiated'. HSA/FSA payments made through Shopify Payments cannot be auto-substantiated.”
Because Shopify Payments does not provide auto-substantiation it does not qualify as an IIAS. This means that unless your business qualifies for a health care MCC code (see above), Shopify Payments cannot be used to accept HSA and FSA payments. Check with your payment provider to see if you qualify for an appropriate MCC.
What about using another payment processor?
If you noticed above, some payment processors do offer ‘auto-substantiation’.
First, let’s explain what payment processors are: they are a company or service that facilitates electronic transactions — whether that is credit or debit cards or digital wallets — between the customer, merchant, and financial institution. Essentially, the processor validates and authorizes the transaction, makes sure information is being sent securely, and coordinates the transfer of funds. Popular examples include Stripe and Square.
Some payment processors specialize in HSA and FSA payments, such as us here at Flex, and can auto-substantiate purchases against the SIGIS Eligible Product List (EPL), the industry standard, which allows for payments to be accepted.
What if my customers obtain a Letter of Medical Necessity?
A LOMN must stipulate why your item or service is medically necessary to address a specific medical condition. It allows consumers to purchase health-related items not already approved by the IRS.
Your customer can be reimbursed for their purchase if they first obtain a LOMN. This means they must buy the item out of pocket then submit a receipt along with the LOMN to their HSA/FSA administrator to recoup the cost.
The process of obtaining a LOMN can be time-intensive and must be done ahead of purchase. More often than not, consumers will simply pay out of pocket instead of waiting until they can see their provider or not buy the item at all. Either way, it’s a poor customer experience or lost sales for you.
To solve these pain points, we offer a more convenient alternative for brands and their customers.
Flex: The Fastest Way to Accept HSA/FSA
We’ve partnered with dozens of Shopify businesses because we make the process of accepting HSA and FSA payments easier. If you’re considering this option, you can get set up in as little as 30 minutes with our Shopify Payment App or 48hrs with Flex's Secure API.
Beyond being quick to the draw, we offer two ways to accept HSA/FSA cards at checkout:
1) We provide an Inventory Information Approval System (IIAS): If you are selling HSA/FSA-eligible items, we auto-substantiate HSA/FSA transactions at the point of sale in order for consumers to use their HSA/FSA cards.
2) We can issue a Letter of Medical Necessity directly in the checkout flow: If your product or service is not explicitly eligible by the IRS, your customer can fill out an eligibility form right in the Flex checkout to see if they qualify to pay with HSA/FSA. Our on-call doctors then review your customer’s eligibility providing a seamless and compliant checkout.
This is a major improvement on the traditional way of doing things, especially if you consider that accelerated checkout experiences can increase conversions by up to 50%.
Whether you’re looking to go full-on eligible or support your customer in obtaining a LOMN, we’re here to help you become a Shopify success story.
One of the easiest ways you can boost sales on your Shopify store is by accepting Health Savings Account (HSA) and Flexible Spending Account (FSA) payments.
It starts with HSA and FSA holders who want to utilize the tax savings of these accounts. So say users — in 2023, we surveyed 100 consumers who purchased via Flex and found that 62% of respondents stated that the availability of HSA/FSA payment options is “very important” when making a health or wellness-related purchase.
Brands hear this too: we’ve spoken with dozens of health-related Shopify merchants who reached out to us because their customers were asking to use their HSA or FSA. (Typically after first having their card denied at checkout — more on this below.)
Sure, these are anecdotal, but statistically there are a lot more folks where that came from! In fact, HSAs alone cover over 60 million people in the U.S. — just one of a billion reasons you should care.
HSA and FSA fast facts:
$120+ billion market: As of 2024, there is estimated to be over $120B invested in HSA accounts and about $30B for FSAs (for 2020).
Customers want to pay with HSA/FSA: From our survey, 92% of respondents said they would be “very likely” to shop at a merchant again if they offer HSA/FSA payment options.
Increased savings means increased sales: Consumers generally save 30 to 40% on purchases they make with their accounts driving them to spend more on purchases. Among Flex partners, the AOV for HSA/FSA orders are 20% higher than standard ones.
Best of all, it’s a win-win for you and your customer: by accepting HSA and FSA payments on Shopify you can support their wellness journey and help them save money too.
Why You Can’t Automatically Accept HSA and FSA Payments on Shopify
Cutting to the chase: HSA and FSA cards can only be used at medical institutions (i.e., a hospital or dentist's office) and retailers with specific inventory management systems and products that are approved for the Eligible Product List.
That means most consumer health and wellness ecommerce companies are not equipped to accept HSA/FSAs right off the bat.
What’s Required to Accept HSA and FSA Payments
As a brand, it is your responsibility to meet IRS regulations to allow customers to pay with their HSA or FSA. We cover the whole process of becoming eligible in a separate article, but here’s the gist of it:
1) Your product needs to address a specific medical condition: According to the IRS, medical care expenses “must be primarily to alleviate or prevent a physical or mental disability or illness… [and] don't include expenses that are merely beneficial to general health.” They’ve outlined a long list of items and services that are pre-approved for reimbursement with an HSA or FSA.
The caveat is that most consumer-focused health and wellness items don’t initially qualify because they can also be used for general health purposes.
Here’s the catch: the IRS allows doctors and medical professionals to recommend individualized interventions — everything from yoga to fitness trackers to baby monitoring devices — as long as they meet the criteria of diagnosis, cure, mitigation, treatment, or prevention of a specific medical condition.
This is how your item can be covered by HSA/FSA, but it requires the customer to obtain a Letter of Medical Necessity (LOMN) which deems a product or service medically necessary.
If you’d like for your product to become outright eligible (and not require a LOMN), you’ll need to comply with one of the two following criteria as well.
2) You need an appropriate merchant category code (MCC): An MCC classifies the type of goods or services a business offers for tax reporting purposes and are key for payment processing. Items that have a health care MCC will automatically be approved for usage with HSA and FSA payments. However, as a non-health care institution, you're unlikely to be eligible for an MCC that is approved for HSA/FSA usage. You can see a list of some medical MCCs here.
Or
3) You need an IIAS: An Inventory Information Approval System is a validation technology that merchants (ala pharmacies, grocery stores, and ecommerce businesses) are required to have in order to verify that purchases made with an HSA or FSA debit card are for eligible medical expenses. This system reviews the inventory control information (e.g., UPC or SKU number) of the items being purchased against a pre-established list of eligible medical products, and only allows transactions for goods and services on that list.
Shopify Payments Isn’t Set up to Accept HSAs and FSAs
Shopify may be an ecommerce backbone of the internet helping merchants sell to over 700 million customers, however they aren’t currently set up to allow merchants to accept HSA and FSA payments with their internal payment processor, Shopify Payments.
From Shopify itself: “The IRS requires that buyers using an HSA/FSA payment card can account for (substantiate) their spending using the card. Some payment processors offer a service whereby payments can be 'auto-substantiated'. HSA/FSA payments made through Shopify Payments cannot be auto-substantiated.”
Because Shopify Payments does not provide auto-substantiation it does not qualify as an IIAS. This means that unless your business qualifies for a health care MCC code (see above), Shopify Payments cannot be used to accept HSA and FSA payments. Check with your payment provider to see if you qualify for an appropriate MCC.
What about using another payment processor?
If you noticed above, some payment processors do offer ‘auto-substantiation’.
First, let’s explain what payment processors are: they are a company or service that facilitates electronic transactions — whether that is credit or debit cards or digital wallets — between the customer, merchant, and financial institution. Essentially, the processor validates and authorizes the transaction, makes sure information is being sent securely, and coordinates the transfer of funds. Popular examples include Stripe and Square.
Some payment processors specialize in HSA and FSA payments, such as us here at Flex, and can auto-substantiate purchases against the SIGIS Eligible Product List (EPL), the industry standard, which allows for payments to be accepted.
What if my customers obtain a Letter of Medical Necessity?
A LOMN must stipulate why your item or service is medically necessary to address a specific medical condition. It allows consumers to purchase health-related items not already approved by the IRS.
Your customer can be reimbursed for their purchase if they first obtain a LOMN. This means they must buy the item out of pocket then submit a receipt along with the LOMN to their HSA/FSA administrator to recoup the cost.
The process of obtaining a LOMN can be time-intensive and must be done ahead of purchase. More often than not, consumers will simply pay out of pocket instead of waiting until they can see their provider or not buy the item at all. Either way, it’s a poor customer experience or lost sales for you.
To solve these pain points, we offer a more convenient alternative for brands and their customers.
Flex: The Fastest Way to Accept HSA/FSA
We’ve partnered with dozens of Shopify businesses because we make the process of accepting HSA and FSA payments easier. If you’re considering this option, you can get set up in as little as 30 minutes with our Shopify Payment App or 48hrs with Flex's Secure API.
Beyond being quick to the draw, we offer two ways to accept HSA/FSA cards at checkout:
1) We provide an Inventory Information Approval System (IIAS): If you are selling HSA/FSA-eligible items, we auto-substantiate HSA/FSA transactions at the point of sale in order for consumers to use their HSA/FSA cards.
2) We can issue a Letter of Medical Necessity directly in the checkout flow: If your product or service is not explicitly eligible by the IRS, your customer can fill out an eligibility form right in the Flex checkout to see if they qualify to pay with HSA/FSA. Our on-call doctors then review your customer’s eligibility providing a seamless and compliant checkout.
This is a major improvement on the traditional way of doing things, especially if you consider that accelerated checkout experiences can increase conversions by up to 50%.
Whether you’re looking to go full-on eligible or support your customer in obtaining a LOMN, we’re here to help you become a Shopify success story.
Flex is a modern marketplace for consumers to discover and purchase HSA/FSA eligible products. From fitness and nutrition, to sleep and mental health, Flex takes a holistic view of healthcare and enables consumers to use their pre-tax money to do the same.