I'm wanting to know the penalties behind FSA (Flexible Spending Account) fraud?

Question

And I know it may seem obnoxious but I was truly unaware. I submit receipts for Massage Therapy reimbursement through my FSA plan & I'm paid. I recently found out my medical insurance covers massage therapy & so I submitted a claim there for reimbursement & it was approved. My medical insurance & FSA are intertwined so anytime my medical insurance processes a claim, FSA is also notified, & what the insurance doesn't pay me the FSA does. So my medical insurance company has submitted the medical claims to FSA & for now the FSA claims have been approved for what they figure I have yet to be paid. Am I able to deny the funds from FSA since they've technically already paid me for this? If by doing this, would this alert them to investigate me since I'm wanting to deny? Would this also be an issue with my medical insurance? What are the penalties?

James L. Arrasmith · Answer

This situation involves potential fraud related to Flexible Spending Accounts (FSAs) and health insurance claims. Here's an overview of the legal implications and potential penalties: 
 
1. FSA and Insurance Fraud: 
What you've described could be considered fraud against both your FSA provider and your health insurance company. You've essentially received double reimbursement for the same medical expenses, which is not allowed. 
 
2. Penalties: 
FSA fraud and health insurance fraud can be treated as federal crimes, especially if they involve crossing state lines or using electronic communications. Penalties can include: 
 
- Fines: These can be substantial, often in the tens of thousands of dollars or more. 
- Imprisonment: Depending on the severity and amount involved, this could range from months to several years. 
- Civil penalties: You might be required to pay back the fraudulently obtained funds, plus additional penalties. 
- Loss of benefits: Your employer could terminate your FSA and health insurance benefits. 
- Employment consequences: You could face termination or other disciplinary action at work. 
 
3. Denying the Funds: 
Proactively denying the additional FSA reimbursement is a good step towards rectifying the situation. However, it may indeed trigger an investigation, as it could raise red flags about your previous claims. 
 
4. Next Steps: 
I would advise the following: 
 
a) Do not accept any additional funds from your FSA for claims that have already been reimbursed by your health insurance. 
 
b) Consult with a lawyer who specializes in healthcare fraud or white-collar crime. They can provide personalized advice on how to proceed. 
 
c) Consider self-reporting the error to both your FSA provider and health insurance company. While this may lead to an investigation, proactively addressing the issue often results in more lenient treatment than if the fraud is discovered independently. 
 
d) Be prepared to repay any incorrectly reimbursed funds. 
 
5. Insurance Company Issues: 
Your health insurance company may indeed take issue with this situation. They could potentially accuse you of fraud as well, which could lead to loss of coverage or other penalties. 
 
Remember, ignorance of the law is generally not considered a valid defense, but demonstrating that you made an honest mistake and are taking steps to correct it can sometimes help mitigate the consequences. 
 
Given the complexity and potential severity of this situation, it's crucial to consult with a legal professional who can provide advice tailored to your specific circumstances and guide you through the process of addressing this issue.

Q: I'm wanting to know the penalties behind FSA (Flexible Spending Account) fraud?