Insurance now covers an expense that has already been reimbursed.

[bcspace]

Employee incurred an expense that was first submitted to insurance. Insurance paid part. Claim for the rest was then submitted to HRA and the remainder to MFSA (about $500 to the MFSA) and both reimbursed. Only just now is the insurance company saying that the entire amount should have been covered by them and has notified the employee that a check will be sent. The original claim was occured and reimbursed in their 2009 plan year which ended 12/31/2009.

What should or can be done in this case? I'm assuming the HRA portion needs to be refunded back to the account. But what about the Flex? The employee, not unreasonably, claims that there were other incurred expenses that she could have had reimbursed via the MFSA. Perhaps just use the insurance check to refund the HRA and the ee keeps the remaining $500 and Flex is therefore appropriately used up?

[J Simmons]

Since available HRA $ have to be exhausted before the MFSA can be accessed for reimbursement (and maybe they were), when you have these dollars coming back (from the insurance) they probably need to be restored in reverse order, to the MFSA before you can then have any restored to the HRA.

The most I would chance would be to let the EE turn in other expenses incurred by the end of 2009, even though the claims submission period has probably ended, and then reimburse first out of the replenished (as of 12/31/2009 accruals) HRA and then the MFSA. You can't really turn the clock back and have more expenses incurred in 2009 than already in fact were. I don't think the IRS would be in favor, on audit, of you allowing a new period for expenses now to qualify out of the 2009 MFSA. It's not a good argument that the EE was deprived of the opportunity to manipulate the incurrence of medical expenses and use up all of his MFSA, so now we'll give him that opportunity, particularly since to mimic insurance, there needs to be the chance the EE will pay more for the MFSA coverage than he is reimbursed by reason of it.

I think it is pretty clear under the regs that just letting the EE have the dollars without any corresponding medical expenses would not fly.

[LRDG]

Auditors by training target items such as the re-calculated medical plan claim to identify potential audit exceptions=tax problems, and follow HRA and MFSA transactions to verify the proper adjustments were made and that compliance with respective IRS regs was maintained. These types of transactions are obvious/easy targets for IRS auditors.

If the medical insurance plan re-considered a prior claim payment and recalculated the medical insurance plan payment at a higher rate, the HRA and MFSA must both be adjusted to reflect the higher insurance payment amount.

The original transactions should be reversed and credited back to the participant's 2009 HRA and MFSA accounts. The HRA and MFSA claim should be re-calculated based on the higher medical insurance payment.

If because there were no 2009 MFSA forfeitures and by extension no need for the participant to continue filing additional 2009 MFSA claims before the re-calculation, the participant should be allowed to present qualified 2009 claims w/service dates no later than 12/31/09, (the last day of the plan year) to avoid forfeiting MFSA funds that become available as a result of the recalculated medical insurance payment.

Not making the appropriate adjustments could jeopordize the compliance status of the MFSA at the plan level as well as the participant level.

Create an audit trail that clearly outlines adjustments made and why, document, document, document. Auditors by training target items such as the re-calculated medical plan claim to identify tax problems, and will follow HRA and MFSA transactions to verify the proper adjustments were made.