What happens if an individual withdraws money from their HSA to pay a medical bill, but is later reimbursed by their insurance company for that medical expense?

This situation is referred to as an "erroneous distribution". The HSA accountholder can repay the mistaken distribution by April 15 of the following year with no penalty if there is reasonable evidence that the original distribution was made in good faith and that it was a qualified medical expense. The repayment is classified as a "re-deposit", not a contribution; therefore, it would not count "twice" toward the yearly maximum. Individuals could use the HSA contribution form to send with their repayment, indicating “Re-Deposit” on the form.