7 February 2002 External T.I. 2001-0109875 - US MEDICARE PLAN B

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 CCRA.

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

Principal Issues: whether payments for US Medicare Part B are PHSP payments

Position: information does not establish that expenses are limited to "medical expenses" per ITA

Reasons: 118.2; 248(1)

2001-010987

XXXXXXXXXX Denise Dalphy, LL.B.

(613) 941-1722
February 7, 2002

Dear XXXXXXXXXX:

Re: Payments for United States of America's Medicare Part B

This is in reply to your letter dated November 1, 2001 wherein you asked whether amounts paid by Canadian residents for coverage under Medicare Plan B in the United States are amounts paid to a "private health services plan" (a "PHSP") within the meaning assigned by subsection 248(1) of the Income Tax Act (the "Act"). You have indicated that this coverage may be available to residents of Canada who are recipients of U.S. Social Security benefits and who choose to pay the premiums.

Written confirmation of the consequences inherent in particular transactions are given by this directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R4. Where the particular transactions are partially completed or completed, the enquiry should be addressed to the relevant Tax Services Office. Notwithstanding the foregoing, we are providing the following comments.

Paragraph 118.2(2)(q) of the Act provides that a premium, contribution or other consideration under a PHSP is a medical expense of an individual for the purposes of subsection 118.2(1) of the Act if they are paid in respect of the persons listed in paragraph 118.2(2)(q), except to the extent that a deduction under subsection 20.01(1) of the Act is available. Interpretation Bulletin IT-339R2, Meaning of "Private Health Services Plan", describes the criteria that must be satisfied in order for a plan to be considered a PHSP. In particular, paragraph 4 therein provides:

"4. Coverage under a plan must be in respect of hospital care or expense or medical care or expense which normally would otherwise have qualified as a medical expense under the provisions of subsection 118.2(2) in the determination of the medical expense tax credit (see IT-519)."

The information that we have reviewed about the coverage provided under Medicare Plan B does not clearly establish that it is solely in respect of expenses that are "medical expenses" for the purposes of subsection 118.2(1) of the Act. Further, it is not clear whether the persons covered by Medicare Plan B are limited to those persons listed in paragraph 118.2(2)(q) of the Act. In addition, it would be necessary to determine whether, in a particular situation, an amount was deducted under subsection 20.01 of the Act in respect of the coverage. As such, we are not able to confirm whether or not the payment of such premiums would qualify as a "medical expense" under paragraph 118.2(2)(q) of the Act.

Based on the information that we have, it appears that amounts paid for Medicare Plan B are merely "set-off" against an individual's entitlement to U.S. Social Security benefits. In such a situation, if the premiums paid by way of a "set-off" do otherwise satisfy the criteria in paragraph 118.2(2)(q) of the Act, the full amount "set-off" would be a "medical expense" for the purposes of the Act, subject to the general limitations set out in Interpretation Bulletin IT-519R2, Medical Expense and Disability Tax Credits and Attendant Care Expense Deduction.

The foregoing comments represent our general views with respect to the subject matter. As indicated in paragraph 22 of Information Circular 70-6R4, the above comments do not constitute an income tax ruling and accordingly are not binding on the Canada Customs and Revenue Agency. Our practice is to make this specific disclaimer in all instances in which we provide an opinion.

Yours truly,

Steve Tevlin
for Director
Business and Partnerships Division
Income Tax Rulings Directorate

"Medical and Other Services: Doctors' services (not routine physical exams),

outpatient medical and surgical services and supplies, diagnostic tests, ambulatory surgery center facility fees for approved procedures, and durable medical equipment (such as wheelchairs, hospital beds, oxygen, and walkers). Also covers second surgical opinions, outpatient physical and occupational therapy including speech-language therapy, and outpatient mental health care.

YOU pay:

$ $ 100 deductible (pay once per calendar year) .

20% of Medicare-approved amount after the deductible, except in the outpatient setting.

20% % for all outpatient physical, occupational, and speech-language therapy services.

50% for outpatient mental health care.

Clinical Laboratory Service: Blood tests, YOU pay:

urinalysis, and more. Nothing for Medicare--approved services.

Home Health Care: Part-time skilled nursing care, YOU pay:

home health aide services, durable medical equipment Nothing for Medicare--approved services when supplied by a Medicare-approved home health 20% % of Medicare-approved amount agency while you are getting Medicare-covered home durable medical equipment, health care, and other medical supplies and services.

Outpatient Hospital Services: Hospital YOU pay:

services and supplies received as an A coinsurance or co-payment amount outpatient as part of a doctor s care. may vary according to the service.

Blood: Pints of blood you get as an YOU pay:

outpatient, or as part of a Part B covered For the first 3 pints of blood, then 20% service. the Medicare-approved amount additional pints of blood (after the deductible), unless you or someone else donates blood to replace what you use.

* New Part A and B amounts will be available by January 1, 2002.

Note : Actual amounts you must pay may be higher if the doctor or supplier does not accept assign mint, and you may have to pay the entire charge. If you have general questions about Medicare B, call your Medicare Carrier ( see pages 18-20) . If you have questions about durable

equipment, including diabetic supplies, call your Durable Medical Equipment Regional

Section 2: The Medicare
Medicare Part B Covered
Preventive Services
Who is covered. . . What YOU pay in the

Original Medicare Plan. . .

Bone Mass Measurements:

Frequency of testing varies with your health status.

* Certain people with Medicare who are at risk for losing bone mass include women with low levels of the female hormone estrogen, people who have had broken bones in the past, or who are already being treated for osteoporosis, getting osteoporosis drug therapy, getting glucocorticoid (steroid) therapy (with certain conditions), or have primary hyperparathyroidism.

20% of the Medicare-approved amount (or a set co-payment amount) after the yearly Part B deductible.

Colorectal Cancer Screening:

Fecal Occult Blood Test --Once every 12 months.

Flexible Sigmoidoscopy --Once every 48 months.

Colonoscopy --Once every 24 months if you are at high risk for colon cancer. Starting July 1, 2001, once every 10 years but not within 48 months of a screening sigmoidoscopy, if you are not at high risk for colon cancer.

Barium Enema --Doctor can use this instead of flexible sigmoidoscopy or colonoscopy.

All people with Medicare age 50 and older. However, there is no minimum age for
having a colonoscopy.

Nothing for the fecal occult blood test.

For all other tests, 20% of the Medicare-approved amount after the yearly Part B deductible.

For flexible sigmoidoscopy or colonoscopy, you pay 25% of the Medicare-approved amount if the test is done in an ambulatory surgical center or hospital outpatient department.

Diabetes Services:

Coverage for glucose monitors, test strips, and lancets.

Diabetes self-management training.

All people with Medicare who have diabetes (insulin users and non-users)
If requested by your doctor or other provider and you are at risk for complications

from diabetes.

20% of the Medicare-approved amount after the yearly Part B deductible.

Mammogram Screening:

Once every 12 months.

also covers new digital technologies for mammogram screenings.

All women with Medicare age 40 and older. You can also get one baseline mammogram between ages 35 and 39.

20% of the Medicare-approved amount with no Part B deductible.

Pap Test and Pelvic

Examination:

NEW ! Starting July 1, 2001, Pap test and pelvic
examinations are covered once every 24 months.

Once every 12 months if you are at high risk for cervical or vaginal cancer, or if you are of childbearing age and have had an abnormal Pap test in the past 36 months.

All women with Medicare.

Nothing for the Pap lab test. For Pap test collection and pelvic and breast exams, 20% of the Medicare-approved amount (or a co-payment amount) with no Part B deductible.

Prostate Cancer Screening:

Digital Rectal Examination --Once every 12 months.

Prostate Specific Antigen (PSA) Test -Once every 12 months.

All men with Medicare age 50 and older.

Generally, 20% of the Medicare-approved amount for the digital rectal exam after the yearly Part B deductible. No coinsurance and no Part B deductible for the PSA Test.

Shots (vaccinations):

Flu Shot --Once a year in the fall or winter.

Pneumococcal Pneumonia Shot -One shot may be all you will ever need. Ask your doctor.

Hepatitis B Shot --People with Medicare at medium to high risk for Hepatitis B.

All people with Medicare.

Nothing for flu and pneumococcal pneumonia shots if the health care provider accepts assignment. For Hepatitis B shots, 20% of the Medicare-approved amount (or a co-payment amount) after the yearly Part B deductible.

Ambulance services (when other transportation would endanger health).

Artificial eyes.

Artificial limbs that are prosthetic devices, and their replacement parts.

Braces -arm, leg, back, and neck.

Chiropractic services (limited), for manipulation of the spine to correct a subluxation.

Emergency care.

Eyeglasses -one pair of standard frames after cataract surgery with an intraocular

lens.

Immunosuppressive drug therapy for transplant patients as long as you are

covered by Medicare (transplant must have been paid for by Medicare).

Kidney dialysis.

Macular degeneration (an age-related eye disease) treatment, using ocular
photodynamic therapy with verteporfin.

Medical supplies -items such as ostomy bags, surgical dressings, splints, casts, and
some diabetic supplies.

Outpatient prescription drugs (very limited). For example, some oral cancer drugs.

Preventive services ( see pages 9-10).

Prosthetic devices, including breast prosthesis after mastectomy.

Services of practitioners such as clinical psychologists, social workers, physician assistants, and nurse practitioners.

Telemedicine services in some rural areas.

Therapeutic shoes for people with diabetes

(in some cases).

Transplants -heart, lung, kidney, pancreas, intestine, bone marrow, cornea, and liver (under certain conditions and when performed at approved facilities).

X-rays, MRIs, CAT scans, EKGs, and some other diagnostic tests.

What is not paid for by Medicare Part A and Part B in the Original Medicare Plan?

The Original Medicare Plan does not cover everything. Your out-of-pocket costs

for health care will include, but are not limited to:

Acupuncture.

Deductibles, coinsurance, or co-payments when you get health care services (see the

What You Pay part of the charts on page 4 and pages 8-10).

Dental care and dentures (in most cases).

Cosmetic surgery.

Custodial care (help with bathing, dressing, using the bathroom, and eating) at home or in a nursing home.

Health care you get while traveling outside of the United States (except in limited

cases).

Hearing aids and hearing exams.

Orthopaedic shoes.

Outpatient prescription drugs (with only a few exceptions).

Routine foot care (with only a few exceptions).

Routine eye care and most eyeglasses.

Routine or yearly physical exams.

Screening tests except those listed on pages 9-10.

Shots (vaccinations) except those listed on page 10.

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