Letter of Medical Necessity for HSA and FSA: The Rules
The letter is the same document for both accounts. What differs is when it gets checked, and what happens if it is missing. This page covers the plan-side rules — the letter itself is on the letter of medical necessity page.
Short answer: an FSA administrator usually reviews your documentation when you claim, so a weak letter fails immediately. An HSA lets you self-substantiate, so a weak letter fails years later during an audit, when the consequence is income tax plus a 20 percent penalty. The HSA route feels easier and carries the larger risk.
HSA versus FSA, on the points that matter here
| HSA | FSA | |
|---|---|---|
| Who checks the documentation | You do, at the time. Administrators may spot-check | The administrator, usually before paying |
| When a weak letter surfaces | During an IRS audit, potentially years later | At the moment you submit the claim |
| Deadline to spend | None. Funds roll over indefinitely | Plan year, plus any grace period or carryover your plan allows |
| Reimbursing yourself later | Allowed with no time limit, if the expense post-dates the account | Must fall within the plan year rules |
| Cost of getting it wrong | Distribution taxed as income, plus 20 percent additional tax under 65 | Claim denied, or repayment demanded |
| Who owns the account | You, permanently | Your employer’s plan |
What each account needs from you
For an FSA, assume the letter will be read by someone who has to justify approving it. Name the item precisely, include the diagnosis code, and attach an itemised receipt rather than a card statement. If the plan has its own claim form, the letter goes alongside it, not instead of it.
For an HSA, nobody may ask at all — and that is the trap. You take the distribution, the money moves, nothing happens. The documentation only matters if the IRS reviews the year, at which point an unsubstantiated distribution becomes taxable income plus, under 65, an additional 20 percent tax under Publication 969. Keep the letter and receipt with your tax records for as long as the return is open to examination.
The reimbursement question nobody asks first
Plenty of administrators reimburse only the difference between a standard version of an item and the medically necessary one. A $1,800 adjustable bed where a $600 bed would otherwise do may be reimbursed at $1,200, not $1,800.
This varies by plan and it is not usually written anywhere you will find it. Two minutes on the phone before you buy is the whole mitigation:
- Does this category require an LMN?
- Do you need your own claim form alongside it?
- Do you reimburse the full purchase price or the difference over a standard equivalent?
If a claim is denied
Denials are usually documentation problems, not eligibility problems. In order of how often they are the cause:
- The letter named a category, not an item. “Exercise equipment” instead of a named treadmill.
- No diagnosis code. Add the ICD-10 and resubmit.
- A card statement instead of an itemised receipt. The receipt has to show product, price and date.
- The letter post-dates the purchase. Hardest to fix, because it goes to whether the item was part of a treatment decision at all.
- The category is excluded by the plan. Rare, but final. Ask before you buy.
Ask the administrator which of these applies rather than resubmitting the same packet — the second identical submission is denied the same way as the first.
Where to go next
The template has the wording that survives review. Product-specific guides cover which diagnoses actually support each claim: mattress, treadmill, sauna, air purifier, humidifier, gym membership.
Sources
- Internal Revenue Service, Publication 969: Health Savings Accounts and Other Tax-Favored Health Plans — HSA and FSA rules, distribution treatment, and the additional tax on non-qualified distributions.
- Internal Revenue Service, Publication 502: Medical and Dental Expenses — the definition of a qualified medical expense both account types apply.
Frequently asked questions
Is a letter of medical necessity treated differently by an HSA and an FSA?
The substantiation standard is the same, because both rely on the IRS definition of a qualified medical expense. The practical difference is timing and control. FSA funds are use-it-or-lose-it within the plan year and the administrator usually reviews claims up front. HSA funds roll over and you self-substantiate, which means the letter matters most if you are ever audited rather than at the point of purchase.
Can I reimburse myself from my HSA years after the purchase?
Yes, provided the expense was incurred after the HSA was established and you have not already claimed it elsewhere. There is no deadline for reimbursing yourself from an HSA. You must keep the letter and the itemised receipt for as long as you might need to substantiate the distribution.
What happens if my FSA claim is denied?
You can usually resubmit with additional documentation. The most common fixes are a letter that names the specific item rather than a category, adding the ICD-10 code, or supplying an itemised receipt in place of a card statement. Ask the administrator what specifically was missing rather than resubmitting the same packet.
Does an HSA distribution without a letter become taxable?
If the expense turns out not to be a qualified medical expense, the distribution is included in your gross income and, if you are under 65 and not disabled, generally carries an additional 20 percent tax. That is the reason to keep the letter, not just to get the claim through.