Why Payment Processors Like Stripe, PayPal, and Braintree Don't Solve FSA/HSA Acceptance on Their Own

If you're a telehealth or e-commerce merchant, you're probably running on a modern processor like Stripe, PayPal, or Braintree. They make it easy to accept Visa, Mastercard, and digital wallets.

But here's the catch: when it comes to FSA and HSA cards, processors alone don't work.

Without SIGIS/IIAS compliance, you'll quickly run into problems:

• Declines at checkout when eligibility can't be confirmed.

• Illegal approvals that put consumers and merchants at risk of IRS fines.

• Manual substantiation requests (receipts, doctor's notes) because processors don't connect to benefits administrators.

In this guide, we'll break down:

1. How FSA/HSA card compliance really works

2. What SIGIS and IIAS are, and why they matter

3. Why processors like Stripe, PayPal, and Braintree fall short

4. The risks merchants face when relying on processors alone

5. The two real solutions: IIAS compliance or reimbursement-first

How FSA/HSA Cards Work

FSA and HSA cards look like standard debit cards, but they're governed by IRS rules:

• Eligible spend only. Funds can be used only on IRS-approved healthcare products/services.

• Auto-substantiation required. Every transaction must be automatically validated at checkout.

• Manual substantiation fallback. If auto-substantiation isn't possible, consumers must upload receipts or LMNs manually.

That means running FSA/HSA cards through Stripe or PayPal without IIAS logic leads to declines, or worse, approvals that violate IRS rules.

SIGIS & IIAS: The Hidden Gatekeepers

SIGIS

• Special Interest Group for IIAS Standards (SIGIS): the governing body that manages merchant certification.

IIAS

• Inventory Information Approval System (IIAS): verifies items in a cart against eligibility databases.

• If 100% eligible → approved.

• If not → declined.

Certification Options

1. IIAS Merchant Certification

• Requires SIGIS-certified POS or TPS provider.

• Demands SKU mapping, audits, and processor support.

1. 90% Rule Certification

• If 90%+ of sales are eligible, you can skip SKU checks.

• Mostly applies to brick-and-mortar pharmacies.

Why Stripe, PayPal, and Braintree Don't Solve This

These processors can move money, but they don't provide the compliance logic required for FSA/HSA.

1. Declines Aren't the Only Risk

• Without IIAS, most transactions on Stripe, PayPal, or Braintree decline.

• Worse: when they do go through, they may be non-compliant, exposing consumers and TPAs to IRS penalties.

2. Manual Substantiation Headaches

• Since processors don't pass SKU-level data to TPAs, consumers get flagged for receipt uploads and LMN paperwork.

• This frustrates customers and reduces FSA/HSA utilization.

3. Recurring charges need a check at every renewal

• Recurring FSA/HSA card charges need substantiation at every renewal.

• Telehealth subscriptions or refills will decline (or require receipts) if processed directly through Stripe or Braintree.

4. Mixed-Cart Failures

• A cart with both eligible and ineligible items usually declines in full.

• Neither PayPal nor Stripe can split-cart logic without IIAS.

The Merchant Risks of Relying on Processors Alone

Merchants that rely only on processors face:

• Lost revenue from declined transactions.

• IRS compliance risk from illegal approvals.

• Customer frustration from substantiation requests.

• Subscription churn because recurring FSA/HSA charges aren't supported.

Your Real Options

Option 1: Accept the cards at checkout

• Pros: Compliant at checkout, approvals happen in real time.

• Cons:

  • Requires SKU mapping and audits

  • Costly and time-consuming

  • Doesn't work for subscriptions or bundled services

  • Not every processor (including PayPal or Stripe) integrates IIAS natively

Option 2: Let customers pay normally and get reimbursed

Platforms like Burst take a reimbursement-first approach:

1. Shopper pays with any method: credit, debit, Apple Pay, PayPal.

2. Eligible spend is flagged post-purchase.

3. Funds are reimbursed automatically from the FSA/HSA account.

What changes:

• No card approval to get right at the register, because the plan adjudicates the claim afterwards.

• Subscriptions reimbursed automatically.

• Mixed carts handled seamlessly (eligible items reimbursed, others not).

• No SKU mapping or POS rewiring.

• Customers never see substantiation requests.

Comparison Table

Conclusion

Payment processors like Stripe, PayPal, and Braintree are great at moving money. But without SIGIS/IIAS compliance, they can't make FSA/HSA acceptance actually work.

That leaves merchants with two paths:

• Set the business up to accept the cards at the register, with the item-level checking that requires.

• Or let customers pay the way they already do and have their plan reimburse them afterwards. That is what Burst handles: the letter, the claim, and the follow-up.

If you're betting on pre-tax healthcare dollars as a revenue stream, don't assume your processor has you covered. You need compliance, or a partner that abstracts it away.