Nonprofit Blue Cross and Blue Shield plans and other nonprofit health plans may win some and lose some in proposed Internal Revenue Service (IRS) tax regulations.
The IRS has developed the draft regulations, “Computation of, and Rules Relating to, Medical Loss Ratio” (RIN 1545-BL05), to help nonprofit plans comply with a tax rule created by the Patient Protection and Affordable Care Act of 2010 (PPACA).
One proposed change could make it harder for nonprofit plans to qualify for a special tax break.
A second proposed change could make it easier for the plans to qualify for the tax break, and a third proposed change could simplify the process of doing the calculations needed to see if a plan qualifies for the tax break.
The draft regulations are set to appear in the Federal Register Monday. Comments will be due 90 days after the official publication date.
PPACA and IRC Section 833(c)(5)
Before PPACA passed, nonprofit plans could use Internal Revenue Code Section (IRC) 833 to deduct 25 percent of their claims and expenses and 100 percent of their unearned premium reserves from their taxable income.
One PPACA minimum medical loss ratio (MLR) provision requires all health insurers, including nonprofit plans, to spend at least 85 percent of large group premiums and 80 percent of individual and small group premiums on health care or quality improvement efforts. Health insurers that fail to meet the minimum MLR standards must send enrollees’ rebates.
Members of Congress who believed that some nonprofit plans might be getting the Section 833 tax break without making any extra effort to help consumers added a second MLR provision that applies only to the nonprofit plans that use the tax break.
PPACA Section 9016 added Section 833(c)(5) to the Internal Revenue Code.