Benefit Levels: Reasons For and Discussion of
Private Health Services Plans Must Provide for a Degree of Risk
It is Revenue Canada’s belief that a health insurance plan must involve a reasonable degree of risk in order to meet the definition of “private health services plan” in subsection 248(1). Plans that provide an indefinite carry forward of unclaimed medical expenses would not involve a reasonable degree of risk. However, a plan would have a reasonable degree of risk if it provided that any unused balances be forfeited.
Technical Interpretation, Business and General Division
June 2, 1992
Revenue Canada File Number 9210485
Rollover of Unused Credits in a PHSP
Question
Is it permissible for unused credits in a health care plan established under a cafeteria plan to be rolled over to future years?
Department’s Position
Yes. However, for the health care plan to qualify as a PHSP, the plan must involve a reasonable element of risk that is assumed by the employer. Plans that permit the choice of a rollover or a cash-out of unused credits will not qualify as PHSPs. A plan that permits the rollover of unused expenses as well as credits also is not likely to qualify. Plans that permit the rollover of unused credits to be applied to other plans under a cafeteria plan are not considered PHSPs.
On the assumption that your current plan qualifies as a Private Health Services Plan expenses and co-insurance amounts eligible for reimbursement under the health spending account option will be limited to amounts which would otherwise qualify as medical expenses of the individual within the meaning of subsection 118.2 (see enclosed 118.2 Medical Expense Credit) of the Income Tax Act (The Act). Eligible amounts may be claimed in the plan year in which they are incurred or within 12 months of the end of the plan year. The individual subscriber forfeits any credit remaining at the end of a plan year.
Technical Interpretation, Business and General Division
Revenue Canada File Number 9428595