IRS Says Blue Cross Blue Shield Plans Can't Count Quality Expenses in MLR Calculations

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By Sara Hansard  

Jan. 6 --The Internal Revenue Service released final regulations Jan. 6 that prevent Blue Cross and Blue Shield health insurance plans from including quality improvement expenses when calculating whether they meet health-care spending requirements under the Affordable Care Act.

“The final regulations retain the rule in the proposed regulations because the alternative is not supported by the statute,” according to the final regulations (RIN 1545-BL05). The proposed regulations were issued in May 2013, and the Blue Cross and Blue Shield Association said in a comment letter in August that its health plans, which cover about 100 million Americans, should be able to include quality improvement activities as part of the medical loss ratio (MLR) requirement of the ACA . Blue Cross Blue Shield plans should be given the same treatment in allowing quality improvements to be part of their MLR as other plans, the association said.

The MLR requirement generally requires large group health plans to spend at least 85 percent of premiums on medical claims or quality improvement activities, or refund the difference to consumers. Nonprofit plans, however, receive benefits under the tax code that for-profit plans don't.

Section 833 of the Internal Revenue Code “provides that Blue Cross and Blue Shield organizations, and certain other qualifying health care organizations, are entitled to: (1) treatment as stock insurance companies; (2) a special deduction under section 833(b); and (3) computation of unearned premium reserves under section 832(b)(4) based on 100 percent, and not 80 percent, of unearned premiums,” the final regulations say.

The regulations were published Jan. 7 in the Federal Register (79 Fed. Reg. 755).

Consumer Group Backs IRS

Blake Hutson, a senior associate for health reform campaigns in the Southwest office of Consumers Union in Austin, Texas, supported the IRS regulations. Consumers Union wrote in favor of the proposed rule in August.

“The IRS gave them four years of relief from this provision,” Hutson told Bloomberg BNA Jan. 6. Nonprofit Blue Cross Blue Shield plans “are meant to be consumer-focused nonprofit health plans,” he said. He said the regulations effectively apply primarily to Blue Cross Blue Shield plans more than other plans.

“They're still allowed 15 percent overhead, and we think that's more than adequate,” Hutson said. “We think the MLR at 85 percent is more than achievable for nonprofit health insurance plans,” he said. “The Affordable Care Act was clear that quality improvement expenses weren't to be included in the MLR calculation for these insurance companies that already receive special IRS tax treatment.”

 

To contact the reporter on this story: Sara Hansard in Washington at shansard@bna.com

To contact the editor responsible for this story: Janey Cohen at jcohen@bna.com