BlueCross BlueShield Plans Want Quality Improvement Activities in Loss Ratio

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BlueCross BlueShield plans should be allowed to include expenses for quality improvement activities (QIAs) in calculating their medical loss ratios (MLRs) that are used to determine rebates to consumers, the Blue Cross and Blue Shield Association said in an comment letter to the Internal Revenue Service.

Commenting on an IRS proposed rule (REG-126633-12) released May 10 concerning MLR treatment for nonprofit BlueCross Blue Shield plans, BCBSA said the MLR calculation underInternal Revenue Code Section 833(c)(5) should be consistent with the way the MLR is calculated for other health insurance plans under the Affordable Care Act and should account for QIA expenses. The Aug. 12 letter was signed by Justine Handelman, vice president, legislative and regulatory policy.

A public hearing on the proposed rule is scheduled for Sept. 17 at 10 a.m. at the IRS in Washington.

Under ACA, most individual and small group plans must spend at least 80 percent of premiums on medical claims or QIAs, and most large group plans must spend at least 85 percent. Plans that do not meet that threshold must refund the difference to consumers.

Nonprofit BCBS plans must meet an 85 percent threshold because their tax treatment differs from for-profit health insurers. In the proposed rule the IRS did not allow for the inclusion of QIAs for BCBS plans (22 HLR 764, 5/16/13).

'Synchronize' MLR Calculations

BCBSA said Section 833(c)(5) intended to “synchronize” MLR calculations for both for-profit and nonprofit plans “so that both the numerator and denominator of the calculations are the same--which means that QIA expenses … should also be an element of the [Section] 833(c)(5) calculation.”

Leaders of tax-writing committees in Congress have stated their intent to enact legislation requiring that the two MLR calculations be the same, BCBSA said.

BCBSA also said that the final rule should provide that organizations that have insufficient MLRs lose some tax benefits but not lose their status as a stock insurance company.

According to a March 4 report by the Joint Committee on Taxation, Section 833 provides special tax treatment for Blue Cross and Blue Shield organizations, and ACA limits eligibility for the special tax treatment “to those organizations meeting a medical loss ratio standard of 85 percent for the taxable year.”

Consumers Union's Comment

In its Aug. 12 comment letter, Consumers Union (CU) said it “strongly supports the IRS's approach taken here in implementing the Medical Loss Ratio (MLR) requirements as they relate to Blue Cross Blue Shield organizations, and certain other health care organizations, that receive preferred treatment as stock insurance companies under Section 833 of the Internal Revenue Service Code.” CU's letter was filed by Blake Hutson, a senior associate for health reform campaigns in the Southwest office of CU in Austin, Texas.

The IRS has “shown significant flexibility” by delaying full implementation of the ACA MLR provision for BlueCross BlueShield plans for tax years 2010, 2011, 2012, and 2013, CU said. The transition relief should be ended for the 2014 taxable year, it said.

“These regulations correctly do not allow for inclusion of 'activities that improve health care quality' in the numerator of the MLR equation because … this is not allowed for in Section 9016” of ACA, CU said.

“We also support the decision to uphold the statutory requirement in these regulations that an insurance company loses ALL benefits under Section 833 for the taxable year if they fail to meet the MLR requirement,” it said.

“We understand that insurance companies may have an administrative burden if they cycle back and forth between status as a stock insurance company and no preferred status; however, we see this as an additional incentive to meeting the 85 percent requirement,” CU said.

“Health insurers under Section 833 should be held to the 85 percent MLR,” CU said. “Allowing insurers to adjust after the fact with rebates to policyholders, or with a payment to the Department of Health and Human Services or to a State Comprehensive Health Insurance Plan, fails to address consumers' needs for affordable coverage at the time of purchase. Section 833 status is a competitive advantage for insurance companies. As such, there should be no safe harbor for insurers not meeting the 85 percent MLR standard.”

The Blue Cross and Blue Shield Association letter is at Consumers Union's letter is at

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