The Treasury Department and the Internal Revenue Service released a final regulation providing guidance to Blue Cross and Blue Shield (and other qualifying healthcare organizations) on computing and applying the medical loss ratio (MLR) under Code Section 833(c)(5), which is effective as of January 7, 2013 and applies to tax years beginning after December 31, 2013. Under Code Section 833(c)(5), qualifying organizations (including Blue Cross and Blue Shield organizations) are provided with favorable income tax treatment, including: (1) treatment as stock insurance companies, (2) a special deduction under Code Section 833(b), and (3) the computation of unearned premium reserves based on 100 percent of unearned premiums under Code Section 832(b)(4). However, the Patient Protection and Affordable Care Act (ACA) added a provision to the Code, requiring that a qualifying organization must  have a medical loss ratio (MLR) of at least 85 percent to get favorable income tax treatment under Code Section 833(c)(5). For purposes of Code Section 833, an organization’s MLR is its percentage of total premium revenue expended on reimbursement for clinical services provided to enrollees under its policies during such taxable year (as reported under Section 2718 of the Public Health Service Act (PHSA)).
Continue Reading Treasury Dept. and IRS Release Guidance to Qualifying Healthcare Organizations Computing and Applying MLR