News & Information

 

FEATURED PRODUCT

5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.

Learn More »

CCH® BENEFITS — 12/06/10

IRS Provides Medical Loss Ratio Guidance To The Blues

from Spencer’s Benefits Reports: In Notice 2010-79, the Internal Revenue Service provides interim guidance for 2010 for certain Blue Cross and Blue Shield organizations in complying with the medical loss ratio (MLR) provisions of the Patient Protection and Affordable Care Act (ACA).

IRC Sec. 833 allows a special tax deduction to Blue Cross and Blue Shield organizations and other organizations that provide health insurance. ACA. Sec. 833(c)(5) amended Sec. 833 and limits the application of this tax deduction to those groups with a medical loss ratio that is not less than 85%.

Interim Guidance

Because Sec. 833(c)(5) applies to taxable years beginning after Dec. 31, 2009 (including the period in 2010 before enactment of the ACA) taxpayers will need to consider the effect, if any, of the recently-published guidance under Sec. 2718 on issues that arise under Sec. 833(c)(5).

For purposes of determining whether a taxpayer’s percentage of total premium revenue expended on reimbursement for clinical services is not less than 85% (and thus satisfies the requirement of Sec, 833(c)(5)), taxpayers must use the definition of “reimbursement for clinical services provided to enrollees” that is set forth in the U.S. Department of Health and Human Resources interim final regulations.

In addition, the IRS accepts the inclusion of “amounts expended for activities that improve health care quality” as defined in the Department of Health and Human Services interim final regulations.

The consequences for an organization for which the MLR is less than 85% are as follows:

(a) The organization is not taxable as a stock insurance company by reason of Sec. 833(a)(1);
(b) The organization is not allowed the special deduction set forth in Sec. 833; and
(c) The organization takes into account 80%, rather than 100%, of its unearned premiums for purposes of computing premiums earned on insurance contracts during the taxable year under IRC Sec. 832(b)(4).

For more information on Notice 2010-79, contact Rebecca L. Baxter of the Office of Associate Chief Counsel (Financial Institutions and Products) at (202) 622-7117.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

Visit our News Library to read more news stories.