June 8, 2020
The CRA has issued a Technical Interpretation, acknowledging that Private Health Services Plans (“PHSPs”) members may have been unable to use their allocated Health Care Spending Account (“HCSA”) credits during the COVID-19 pandemic due to the restriction on services available. The CRA advises that in light of the extraordinary circumstances of the crisis, it has taken the position that PHSPs may permit plan members to carry forward unused credits that would have expired between March 15, 2020 and December 31, 2020 for a period of up to six months without losing their status as PHSPs.
The CRA’s general administrative position is that PHSPs may only permit members to carry forward unused credits for a period no longer than 12 months. The CRA explains in IT-529 — Flexible Employee Benefit Programs (February 20, 1988) that a limitation on carrying credits forward is necessary because a PHSP must be a plan of insurance and therefore involve an element of risk to the plan member. In the CRA’s view, a plan would not qualify as a plan of insurance if it permitted unused credits to be carried forward indefinitely or reimbursed members for the full amount allocated to them under the plan on an annual basis.
The CRA describes three models of HCSAs that it finds acceptable with respect to carry forward rules:
- Use it or lose it model – the HCSA does not permit the carry forward of unreimbursed eligible medical expenses or unused credits
- Carry-forward of credits – the HCSA permits the carry forward of unused credits to the next plan year (i.e., a period not exceeding 12 months)
- Carry-forward of expenses – the HCSA permits the carry forward of unreimbursed eligible medical expenses to the next plan year (i.e., a period not exceeding 12 months).
Subject to the terms of the PHSP, the permission to extend credits that would have expired between March 15, 2020 and December 31, 2020 will apply to all three models.
Pension and Benefits