Insurance + HSA = too much $

[Rev1053]

I gave birth in August to DD2. I immediately submitted our receipt for the birth to my insurance and to our health spending account (balance $1,388 left). Since everyone we talked to in our area said it was just about impossible to get any money back from either the HSA or the insurance I didnt have high hopes.
But lucky for us the HSA said they would cover midwifery care and sent us a check for $1,388.
At the same time the insurance company magically decided that our midwifery care was covered as well! They just sent me a check yesterday for $2,160.
I only paid $3,000 for the birth. I never expected to get $ from both places! But now I have been reimbursed for $3,548 for a birth that only cost me $3,000.
What do I do now?

[billikengirl]

I would call the HSA administrator and figure out how to remit the excess back to my account.

[~Kristina~]

Wow! I don't have to submit anything to my HSA, I even have an ATM card for mine and that's how I pay my midwife, just have to make sure to get receipts. If you paid out of pocket in the first place, I would just keep the money in a savings account or something.

The extra, I would try to put back, or use it for future medical expenses with receipts to prove what you spent that money on.

[Rev1053]

Originally Posted by ~Kristina~

Wow! I don't have to submit anything to my HSA, I even have an ATM card for mine and that's how I pay my midwife, just have to make sure to get receipts.

I have a VISA card for HSA spending but unfortunately my midwife doesnt take VISA.

I'll call the HSA tomorrow and figure out how to put money back in there. Now we will have $548 to play with for the next 2 months.

Thanks!

[Noelle C.]

There might be legal ramifications for keeping more money than the birth cost. ou have been made more than "whole." So definitely see about putting the extra back into the HSA, though I know it's tempting to keep it.

[CrunchyChristianMama]

If a distribution is made from the HSA and is not used for qualified medical expenses (an amount reimbursed by insurance is not a qualified medical expense) of the account holder or his or her spouse or dependent, the distribution is included in the account holder's gross income and generally is subject to an additional 10% tax. HSA distributions that are made by mistake can be returned to the HSA if there is clear and convincing evidence that the distribution was made “because of a mistake of fact due to reasonable cause.” So long as the mistaken distribution is returned to the HSA no later than April 15 following the first year in which the HSA account holder knew or should have known that the distribution was a mistake, the distribution is not taxable and neither is it subject to the additional 10% excise tax under Code §223(f)(4) nor the excise tax on excess contributions under Code §4973(a)(5).

HSA account balances are nonforfeitable. They automatically carry forward from year to year for future medical expenses.

Also note that HSA account balances are nonforfeitable. They automatically carry forward from year to year for future medical expenses. Therefore, the amount left in the HSA after it is re-contributed to the HSA will not be forfeited like an FSA.

[Rev1053]

I was confused I guess because DH doesnt have an HSA he has an FSA. So that means I loose it if I dont spend it still right? Thats what the lady on the phone told me.

I called the FSA and talked to the lady who told me NOT to send back the money. I insisted that she talk to someone else (she sounded like she didnt know what she was talking about). She called me back 2 days later and told me that they will take the money back but I am not supposed to put money back in my FSA. I argued with her for a bit. And she still insisted that I am not supposed to put the money back but that I can if I so choose to do so.

Now I am worried that if I mail them a check they will not apply it correctly. I really dont want to get a call from the IRS in 6 months. Should I just mail them a check and hope for the best?

I have learned my lesson. I will apply for insurance and wait 2 months before I apply for the FSA.

[Mama Lo]

If the money came from an FSA I wouldn't worry about it. FSA expenses have to be approved before they will reimburse you. Whereas an HSA will pay for anything and then your liable to explain it to the IRS in the event of an audit.
Since the money you were reimbursed with was from your FSA, there isn't anything for you to do. You're all good

[CrunchyChristianMama]

The "qualified medical expense" standard still applies to FSAs, and an amount that is reimbursed by insurance is not a qualified medical expense, and it is therefore subject to income and employment taxes.

The plan can and should take the reimbursement. Generally, they have three options (1) take a repayment; (2) offset the improper reimbursement instead of paying other qualified medical expenses; or (3) treat it as taxable. Because of the shaky response from the claims representative I suggest you talk with the plan administrator (usually the HR department at your/DH's place of work, look in your summary plan description if you still have it). Explain to them that you were reimbursed by insurance and the FSA. The plan administrator has no incentive to treat it as taxable because it creates W-2 issues, and they will have to pay their portion of FICA taxes on it.

No matter what happens, you do want to resolve the issue by year end. There is a "use it or lose it" rule for FSAs (though most FSAs have a 2 1/2 month grace period to substantiate claims from the previous year, and some even have a grace period for new claims).

With all that said, there is little risk the IRS will challenge you where the FSA service provider gave the expense the okay.