CRA discusses how to measure compliance by a PHSP with the 90% METC-eligible expense test
Under CRA’s revised policy on insured private health services plans (PHSPs), all or substantially all of the premiums paid under the plan must relate to medical expenses that are eligible for the medical expense tax credit (METC). CRA confirmed that this means a test of whether 90% or more of the annual premiums paid under the plan relate to METC-eligible expenses, and it would be irrelevant if, for example, only 88% of the benefits paid in the year were METC-eligible. However, in the case of a self-insured plan, the test is one of whether all or substantially all of the benefits paid to all employees in the calendar year are for METC-eligible expenses.
Where a health care spending account (HCSA) sets a ceiling on the amounts that can be claimed under the plan, the employees’ allocation of the ceiling amount to the various expense categories is not considered, so that if the portion of the benefits paid in the year for METC-eligible benefits was, say, 92%, it would not matter that the total ceiling amounts allocated to METC-eligible expenses was only 80%. In the rare case where there was determined to be a separate HCSA plan for each employee, this same test would be applied to each such separate plan.
CRA provides helpful tabular numerical examples.
Neal Armstrong. Summary of 24 January 2019 External T.I. 2016-0651291E5 under s. 248(1) – private health services plan.