Due to the curtailment of services during the COVID-19 pandemic, plan members of a health care spending account (“HCSA”) may not be able to use the credits allocated to the HCSA before they expire, so that they will be forfeited. Could the HCSA carry forward the unused credits expiring during the pandemic for a reasonable period?
CRA first noted that the three general models of HCSAs are:
1. Use it or lose it model – the HCSA does not permit the carry forward of unreimbursed eligible medical expenses or unused credits
2. 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)
3. 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).
CRA then stated:
[W]e acknowledge that employees may not have been able to use the amounts in their HCSAs because of the restrictions placed on many services during the current COVID-19 outbreak. In these extraordinary circumstances, a HCSA that qualifies as a PHSP and which has unused credits expiring between March 15 and December 31, 2020, could temporarily permit the carry forward of those unused credits for a reasonable period to allow members to access services that were otherwise restricted during the COVID-19 outbreak. A carry-forward period of up to six months would generally be considered reasonable and would not, in and of itself, disqualify the HCSA from being a PHSP. This applies to the three general models of HCSAs as described by you.