Introduction

Over $100 billion sits in FSA and HSA accounts each year in the U.S. These are pre-tax dollars designed to help people pay for health and wellness needs: OTC medicine, sunscreen, first aid supplies, fitness memberships, even some grocery items.

And yet, a meaningful share of those dollars never make it into merchants' sales. Instead, shoppers hit confusing checkout declines, abandon their carts, or forget to try again.

The problem isn't demand—shoppers want to spend these funds. The problem is infrastructure. The current rails for accepting FSA/HSA funds at checkout were designed 20 years ago. For many merchants, especially those outside national pharmacy chains, the requirements feel heavy, brittle, and hard to scale.

This guide unpacks the hidden bottlenecks—SIGIS standards, MCC codes, and payment flows—and shows why reimbursement models are becoming the long-term unlock for merchants of all sizes.

The SIGIS Standard and IIAS Requirements

To understand the friction, you need to start with SIGIS: the Special Interest Group for IIAS Standards. This non-profit maintains the rules for how FSA/HSA funds can be accepted at the point of sale.

The core mechanism is called IIAS (Inventory Information Approval System). At a high level, here's how it works:

1. A merchant must maintain an up-to-date catalog of which SKUs are FSA/HSA eligible.

2. At checkout, the POS or e-commerce platform must separate those eligible items from ineligible items in the cart.

3. The system has to ensure that FSA/HSA payment is only applied to eligible products—while any remaining balance must go on a different card.

For large retailers like CVS or Walgreens, this is necessary. They have dedicated teams and infrastructure to manage eligibility lists, maintain real-time connections, and certify compliance.

For smaller merchants—or even mid-sized grocers—the requirements can feel like a heavy lift:

• Technical integration: Cart-level parsing and payment routing at checkout requires engineering resources many teams don't have.

• Ongoing updates: Eligibility rules change, and SKUs need to be updated regularly to stay compliant.

• Certification overhead: SIGIS certification isn't one-and-done. Merchants must maintain compliance to keep their acceptance live.

These rules are important for compliance, but they create a real operational load for merchants trying to support FSA/HSA spend at scale.

The Role of MCC Codes

Even when merchants meet IIAS requirements, payments can still fail. One common reason is Merchant Category Codes (MCCs)—the four-digit codes that classify businesses for payment networks.

For some categories, the MCC is straightforward. Drug stores (MCC 5912) and physician offices (MCC 8011) often see smoother acceptance. But for other categories, MCCs are less precise.

A grocery chain might be classified under a retail code that isn't inherently “medical,” even though part of its inventory qualifies. A wellness retailer might carry a mix of eligible and ineligible products under the same code. In these cases, declines happen—even if the cart includes perfectly eligible items.

So while MCC isn't always a hurdle for merchants, it often becomes a hidden source of false declines that disrupt both consumer and merchant experience.

Where Processors Fit In

Payment processors play a critical role here. They are the ones implementing IIAS standards, applying MCC logic, and enabling merchants to process FSA/HSA transactions.

To be clear: processors do prioritize healthcare. But even with their support, the system is rigid:

• Slow updates: Adding new categories or expanding eligibility can lag months behind IRS guidance.

• Limited flexibility: Processors must adhere to SIGIS standards, which leaves little room for exceptions.

• Inconsistent experience: A transaction that clears at one retailer may fail at another selling the same product.

This isn't about neglect—it's about the constraints of infrastructure built for a narrower definition of “healthcare” that hasn't kept pace with consumer behavior.

The Consumer Impact

For shoppers, the story is simple:

• They try to use their FSA/HSA card on an eligible item.

• The payment declines at checkout.

• They abandon the cart—or they pull out a personal card.

In both cases:

• The consumer loses the tax-advantaged spend (they end up paying with after-tax dollars).

• The merchant sees a smaller cart size (or an abandoned purchase altogether).

Over time, consumers stop even trying to use their benefits in new categories. They associate FSA/HSA with frustration rather than savings.

Why Reimbursement Models Matter

Reimbursement flips the problem on its head. Instead of forcing the checkout system to separate eligible from ineligible spend in real time, merchants can capture the sale first and validate later.

Here's how it works:

1. The shopper pays however they want—credit card, debit card, Shop Pay, Apple Pay.

2. The merchant confirms eligibility of relevant items pre- and post-transaction.

3. The shopper is reimbursed directly from their FSA/HSA account.

This does three things:

• Eliminates false declines. No mixed-cart issues, no MCC restrictions at the moment of purchase.

• Protects conversion rates. Checkout remains simple, with no split payments or added friction.

• Unlocks more categories. As eligibility rules evolve, merchants can adjust without retooling their checkout stack.

The result: a more consistent experience for shoppers, and more captured revenue for merchants.

Examples Across Merchant Types

To see why this matters, consider three different merchant profiles:

• A Shopify sleep-aid brand. Selling FSA-eligible items like OTC sleep aids or blue-light blocking glasses. Shoppers often see declines when mixing these items with ineligible accessories. With reimbursement, the purchase flows smoothly, and the brand can highlight “covered by FSA/HSA.”

• A regional grocery chain. Mixed carts are unavoidable. Without reimbursement, every decline means a lost sale. With reimbursement, the grocer captures the basket, and the eligible portion is reimbursed post-purchase.

• A national retailer. Even with MCC codes and IIAS integrations, edge-case declines cost millions in lost sales. Reimbursement ensures consumers don't leave frustrated when legitimate purchases fail.

The Bigger Picture

The bottlenecks in FSA/HSA acceptance aren't about lack of intent from regulators, processors, or merchants. They're about infrastructure designed for a narrower era of healthcare that hasn't scaled with modern consumer behavior.

• SIGIS and IIAS provide compliance guardrails, but the overhead weighs heaviest on smaller merchants.

• MCC codes classify entire merchants instead of transactions, leading to mismatches.

• Processors keep the system running, but within the limits of standards that leave little room for flexibility.

The result: billions in tax-advantaged dollars go unspent—or get funneled to the few large chains that can maintain the integrations.

Conclusion

FSA and HSA accounts are growing, with over $100B in annual spend and expanding categories of eligibility. Yet many merchants—from small DTC brands to national grocers—remain unable to capture their fair share.

The reasons are structural: SIGIS requirements, MCC restrictions, and rigid processor flows. They ensure compliance but create friction at checkout that translates into lost savings for consumers and lost revenue for merchants.

Reimbursement models don't just patch the problem. They reframe it—making every merchant, regardless of size, capable of offering a smooth FSA/HSA experience without ripping and replacing their checkout stack.

For merchants looking ahead, the choice is clear: keep battling declines at checkout, or embrace models that turn tax-advantaged spend into a reliable growth channel.