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IRS trips up nonprofits

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Nonprofit health plans could find supporting quality improvement activities less attractive.

The Internal Revenue Service has set new tax rules for quality efforts in a final regulation that implements Section 9016 of the Patient Protection and Affordable Care Act.

The regulation appeared today in the Federal Register and take effect immediately. They apply to tax years beginning after Dec. 31, 2013.

Drafters of PPACA Section 9016 wanted to push nonprofit Blue Cross and Blue Shield plans and other nonprofits to spend more of their revenue on patient care and less on administration and increasing reserves.

The nonprofit plans use a federal income tax break, described in Section 833 of the Internal Revenue Code, to reduce their taxes.

The well-known PPACA medical loss ratio rule now requires all carriers to spend 85 percent of large-group revenue and 80 percent of individual and small-group revenue on health care and quality improvement efforts.

PPACA Section 9016 – a much less-publicized section – requires nonprofit plans that get the IRC Section 833 nonprofit plan tax break to have MLRs.

When the IRS published draft Section 9016 MLR regulations in May, some said it should include quality improvement effort spending, just as the other section does.

IRS officials write in the preamble to the new regulations that putting quality spending in the Section 9016 MLR would conflict with the language of PPACA.

Members of Congress specifically mentioned quality spending in Section 2718, but not in Section 9016, officials say.

But officials say they’re open to the idea of letting carriers avoid losing the Section 833 tax break due to small, unintentional MLR misses.

Carriers might be able to make up for MLR misses by making payments to policyholders, state guarantee funds, the U.S. Department of Health and Human Services, or the new PPACA risk management programs.

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