By Sharena Rice, contributing editor
October 26, 2026 | FSAs and HSAs hold tax advantaged money that never touches a payer contract nor a CPT code. Reaching these funds means choosing among a retail list, a clinician’s letter, an FDA pathway, and a reimbursement form, each with a different tradeoff on what a neurotech company can claim.
Health savings accounts held roughly $147 billion across more than 39 million accounts at the end of 2024, and flexible spending accounts add several thousand pretax dollars per employee per year, most of which expires if unspent. For a $400 device, paying pretax saves a customer 20% to 40% depending on bracket and state, a discount the tax code funds, with no payer contract, CPT code, or negotiated rate required. It also isn’t free, and the industry’s biggest confusion is treating it as one system when it’s four.
An FSA is set up by an employer, capped at $3,400 for 2026, and mostly forfeited if unspent by year end, producing a January spike as elections open and a December spike as balances burn. An HSA belongs to the individual, requires a qualifying high-deductible health plan, is capped at $4,400 individual and $8,750 family, and rolls over indefinitely, behaving like an investment account. Neither is insurance. Nobody underwrites your company’s device. Your customer swipes a card or pays and files for reimbursement. This is still direct-to-consumer, just at a lower price.
Eligibility runs through one sentence of tax code. Section 213(d) defines medical care as amounts paid for diagnosis, cure, mitigation, treatment, or prevention of disease, or for affecting any structure or function of the body. That second clause is broader than founders expect and is where most neurotech lives, but the IRS is consistent that general health maintenance doesn’t clear the bar. Feeling better isn’t a medical purpose; treating or preventing a condition is. Products sort into three buckets: always eligible, where a receipt is enough; dual purpose, where a Letter of Medical Necessity ties the product to a diagnosed condition, where most consumer neurotech starts; and never eligible, sold for general wellbeing with no condition attached.
Which bucket you land in is not set by what the technology can do. It is set by what your company is saying the device is for.
That claim question is also where FDA and IRS pull in opposite directions, the most common misunderstanding among founders entering this space. FDA governs what your company can claim: say your device treats or mitigates a disease, and it needs clearance. The IRS governs what pretax money can buy, and clearance never appears in Section 213(d). You don’t need FDA clearance to be eligible. But the claim that keeps you outside FDA jurisdiction, something like “Supports relaxation”, is exactly the claim that lands you in the dual-purpose bucket for tax purposes. The claim that makes you unambiguously eligible, something like “Treats insomnia”, is a device claim requiring clearance. You can’t have both for free, and the tradeoff is the defining decision.
Four routes turn that decision into revenue. A UPC on the SIGIS Eligible Product List auto approves at any certified merchant, but SIGIS excludes dual purpose items by design, open only to products with a medical primary purpose. An FDA indication resolves eligibility almost automatically and alone earns the right to name the condition treated, at the cost of a real regulatory timeline. A Letter of Medical Necessity through a checkout intake platform is fastest, live in weeks, and under the most scrutiny: the IRS warned in March 2024 about letters generated from thin online questionnaires; that warning stands, and a plaintiffs’ firm has opened a consumer investigation into LMN platform marketing. Post purchase reimbursement, an itemized receipt with an LMN if needed, needs no integration and is worth building regardless of which other route you pursue.
On the LMN route, tax exposure sits with your customer. A disallowed HSA purchase becomes taxable income plus a 20% penalty, and a valid letter doesn’t guarantee an FSA administrator agrees, since administrators can apply stricter standards than the IRS baseline. Your customer bears the tax risk; you bear the reputational risk.
Operationally, invoice the eligible device separately from any bundled subscription, so the medical line item stands alone. Write eligibility language conditionally, since a flat FSA/HSA eligible claim draws regulatory attention fastest when eligibility depends on a clinician’s determination. Don’t collect condition information yourself, since that changes your privacy surface materially, and let the clinical platform hold clinical data. Keep current an evidence file connecting the device to a specific condition.
Some of this has uncertainty. Whether the questionnaire-based LMN model survives IRS scrutiny unchanged is an open question, and a business whose economics depend on it surviving is a bet, not a plan. SIGIS does not publish reasoning behind decisions, so submitting early is the only way to learn a novel category’s odds.
Three questions are worth asking about any strategy under consideration.
- Would a clinician who had never seen your marketing write this letter, based only on the patient’s condition and your evidence? If not, you’re selling a tax arbitrage, not a health product.
- If the IRS published a list of customers who used pretax dollars on your company’s device, would you be comfortable defending each one?
- And if the LMN pathway closed tomorrow, would you still have a business? If not, Route 1 or Route 2 needs to start now.
Sleep, anxiety, pain, and attention are undertreated, expensive to treat conventionally, and often responsive to home neurotech interventions, often with lower side effect profiles than medications. These are real claims on a subsidy the tax code already extends to health spending. It only holds if the claims are true.
This article is general information for product and business teams, not tax, legal, or regulatory advice. Eligibility determinations are fact specific and vary by plan administrator. Consult qualified counsel before making claims about your product’s status.
