12 March 2001 Internal T.I. 2000-0056087 - REINSTATEMENT OF CREDITS TO PHSP

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Whether health spending accounts can be reinstated to account for amounts reimbursed to HSA under Section B of car insurance.

Position: There may be a reinstatement of credits in the year in which accident-related expenses were incurred. If plan administrator allows a claim to be filed for those years, the subscriber may be reimbursed for other eligible medical expenses to the extent of the reinstatement.

Reasons: This does not violate guidelines set out in IT-529, and does not affect status of HSA as a plan of insurance.

		2001-005608
XXXXXXXXXX 	Wayne Antle, CGA
(613) 957-2102
March 12, 2001

Dear XXXXXXXXXX:

This is in response to your letter of October 31, 2000 concerning whether Health Spending Account ("HSA") credits can be reinstated for the current year to account for amounts paid to the HSA by an automobile insurer through the subrogation process.

You summarized the facts as follows:

XXXXXXXXXX administers a basic health plan, and a health spending account for a particular employer. More than two years ago, a plan participant ("subscriber") was involved in an automobile accident. As a result of the accident, he incurred medical expenses that were reimbursed to him by XXXXXXXXXX under both the basic and HSA plans. Subsequently, the plans were reimbursed under Section B of the automobile insurance policy through the subrogation process. The subscriber has requested that his HSA credits be reinstated by the amount received by the HSA from the automobile insurance company.

Our Comments

Our views with respect to health spending accounts are explained in paragraphs 14 to 18 of Interpretation Bulletin IT-529 Flexible Employee Benefit Programs. Paragraph 16 explains that in order for an HSA to qualify as a "private health services plan" as defined in subsection 248(1) of the Income Tax Act, it must be a plan of insurance. As such, there must be a reasonable degree of risk in the plan. For this reason, the CCRA will not normally consider a plan that allows a carry forward of health care credits for a period exceeding 12 months following the end of the year as being a "private health services plan".

In our view, the health credits may be reinstated in the years in which the accident-related medical expenses were incurred (to the extent that such expenses were reimbursed to the health spending account under the automobile insurance policy) without adversely affecting the plan's status as a "private health services plan". If the plan administrator permits a claim to be filed for those earlier years, the subscriber could then be reimbursed for eligible medical expenses incurred in those years to the extent of the reinstatement of his credits.

For example, assume a subscriber allocates 500 health credits to his health spending account for 1997. During that year he had a car accident, and used 450 of his health credits as a result of the accident. He also incurred $300 in other eligible medical expenses for which he received only a $50 reimbursement (the remaining health credits in the HSA). In 2000, the HSA received a reimbursement of $450 from the automobile insurance company through the subrogation process. In our view, the subscriber's health spending account could be reinstated 450 health credits for 1997, without adversely affecting the plan. The subscriber could then file a claim to receive reimbursement for the remaining $250 of normal medical expenses that he incurred in that year if the plan administrator were to allow a claim to be made in 2000 for the 1997 plan year.

We are unable to comment on whether the HSA or the automobile insurance company should be first payer in this case as this is not an issue involving the administration of the Income Tax Act.

We trust that our comments will be of assistance.

Yours truly

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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