HSA or FSA Claim Denied? How to Appeal and Get Your Money Back

Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) are powerful tools that let you pay for medical expenses with pre-tax dollars. But when a reimbursement claim is denied, it can mean unexpected out-of-pocket costs and even tax penalties. Understanding why these denials happen and how to appeal them can save you hundreds or thousands of dollars.

HSA vs FSA: Key Differences

Before diving into denials, it helps to understand the key distinctions:

HSA (Health Savings Account):

• Only available with a High Deductible Health Plan (HDHP)
• Funds roll over year to year
• You own the account — it moves with you when you change jobs
• 2025 contribution limits: $4,150 (self), $8,300 (family)

FSA (Flexible Spending Account):

• Available through employer-sponsored plans (most often)
• "Use it or lose it" — most funds must be used within the plan year
• Employer owns the account
• 2025 contribution limit: $3,200

Both accounts reimburse qualifying medical expenses defined under IRS Section 213(d) — but administrators apply these rules with varying strictness.

Why HSA and FSA Claims Get Denied

Non-qualifying expenses: The IRS has specific rules about what qualifies. Common items that people mistakenly assume are covered but often aren't include:

• Gym memberships (unless prescribed for a specific medical condition)
• Vitamins and supplements (unless prescribed for a diagnosed deficiency)
• Cosmetic procedures
• Teeth whitening
• Most personal care products
• Non-prescription medications (though rules changed in 2020 — OTC drugs are now eligible without a prescription under CARES Act)

Missing documentation: Administrators typically require a receipt that includes the provider's name, date of service, type of service, and amount paid. A credit card statement alone is usually not sufficient.

Ineligible provider: The service must have been provided by a qualified medical practitioner. Services from health coaches, personal trainers, or wellness apps may be denied unless they can demonstrate medical necessity.

Duplicate claim: If you submitted a claim that was already reimbursed by your health insurance, your FSA/HSA administrator will deny the duplicate.

Coverage period mismatch: FSA claims must be for services rendered during the plan year. Claims for services outside the coverage period are denied.

Dependent age: FSA/HSA funds can be used for qualifying dependents under age 27. Claims for older dependents are rejected.

The CARES Act Changed the Rules

The Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 permanently expanded eligible HSA/FSA expenses to include:

• Over-the-counter medications without a prescription
• Menstrual care products
• Telehealth services (HDHP-related changes have been extended multiple times)

If your claim for OTC medications or menstrual products was denied, and the service occurred after December 31, 2019, the denial may be in error.

Letter of Medical Necessity (LMN)

Many borderline expenses — such as massage therapy, special dietary foods, air purifiers, or ergonomic equipment — can become eligible with a Letter of Medical Necessity from your doctor. This letter should:

• Be on clinic letterhead
• Identify your diagnosis
• Explain why the item or service is medically necessary for your specific condition
• Specify the recommended duration of use

With a valid LMN on file, administrators are generally required to reconsider denials.

How to Appeal a Denied HSA/FSA Claim

Step 1 — Review the denial reason. Your administrator must tell you why the claim was denied. Log in to your account portal or call customer service to get the specific reason.

Step 2 — Gather supporting documentation. Depending on the reason:

• Missing receipt: Obtain an itemized receipt from your provider
• Non-qualifying expense: Obtain a Letter of Medical Necessity
• Eligibility question: Pull together documentation showing the expense qualifies under IRS Section 213(d)

Step 3 — Submit a formal written appeal. Most HSA/FSA administrators have an appeals process. Submit your appeal in writing with all supporting documents attached. Reference the specific IRS guidance (Section 213(d), IRS Publication 502) that supports your claim.

Step 4 — Escalate if needed. If the internal appeal fails and you believe the denial is incorrect:

• For employer FSAs governed by ERISA: you can escalate to the plan administrator and ultimately to ERISA appeals
• For HSA disputes: contact your HSA custodian bank's compliance department
• For clear IRS violations: file a complaint with the IRS or the Department of Labor

Tax Implications of Wrongful Denials

If you use HSA or FSA funds for a non-qualifying expense, you may owe income tax on the amount plus, for HSAs, a 20% penalty if you're under age 65. This makes it important to fight wrongful denials proactively rather than retroactively.

If your appeal succeeds and you get reimbursed for a legitimate expense, no additional tax implications apply.

Fight Back With ClaimBack

ClaimBack can help you draft a professional appeal letter for HSA/FSA reimbursement denials, backed by IRS guidelines and medical documentation strategies.

Start your appeal at ClaimBack

Related Reading:

• How to Write an Insurance Appeal Letter
• What Is Medical Necessity?
• Common Reasons Insurance Claims Are Denied