What happens when medical ins. covers a procedure already paid with funds from a Flexible Spending Account?

Question

I had a procedure that the Dr. told me was not covered by insurance. I paid using funds from my flexible spending account, FSA (tax free money). I recently found that the procedure is covered, and I can get reimbursed by my insurance carrier. Would I have to pay this money back to my FSA, because I have been reimbursed?

Answer 1

You should be able to keep the money.

If you want to set it aside in an account to back up your FSA, you can do that.

As an insurance payment, it is not taxable, too.  

Answer 2

Yes, you will need to reimburse the FSA. The FSA plans are designed to pay out of pocket cost. Since you will be reimbursed by your Major Medical Insurance Policy for a covered procedure, the FSA deduction will count as a non-covered deduction if your account is audited. You will be penalized for the deduction. See your plan guideline to determine the penalty, or ask your HR Director. This is a situation you want to have resolved if there is an audit.