IRS Issues Rules Relating To Computation Of Medical Loss Ratio

The Internal Revenue Service has issued proposed regulations that provide guidance to Blue Cross and Blue Shield organizations, and certain other health care organizations, on computing and applying the medical loss ratio (MLR) added to the tax code by the Patient Protection and Affordable Care Act (ACA). The regulations are proposed to apply to tax years beginning after Dec. 31, 2013. The proposed regulations were published in the May 13 Federal Register.

The IRS has concluded that the MLR numerator in Code Sec. 833(c)(5) does not include costs for “activities that improve health care quality.” The proposed regulations provide that the same exclusions that are permitted from total premium revenue under Sec. 2718(b) of the Public Health Services Act (PHSA) are permitted exclusions from total premium revenue under Code Sec. 833(c)(5) because both Code Sec. 833(c)(5) and Sec. 2718(b) of the PHSA use the term “total premium revenue.”

Accordingly, the proposed regulations provide that “total premium revenue” for purposes of Code Sec. 833(c)(5) means the total amount of premium revenue for purposes of Sec. 2718(b) of the PHSA and the regulations issued under that section.

The IRS also has concluded that it is appropriate to compute the MLR for a tax year under Code Sec. 833(c)(5) using the same three-year period used under Sec. 2718(b) of the PHSA. Therefore, beginning with the effective date of the rules, amounts used for purposes of Code Sec. 833(c)(5) (that is, total premium revenue and total premium revenue expended on reimbursement for clinical services provided to enrollees) for each tax year should be determined based on amounts reported under Sec. 2718(a) of the PHSA for that tax year and the two preceding tax years, subject to the same adjustments that apply for purposes of Sec. 2718 of the PHSA.

Comments requested. Comments, requests to speak and outlines of topics to be discussed at a public hearing must be received by August 13. Submissions should be mailed to CC:PA:LPD:PR (REG-126633-12), Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington D.C. 20044; or sent electronically via the federal eRulemaking portal at http://www.regulations.gov (IRS REG-126633-12).

Hearing. A public hearing has been scheduled for Tuesday, September 17, 2013, beginning at 10:00 a.m., in the IRS Auditorium of the Internal Revenue Building, 1111 Constitution Avenue NW., Washington, D.C. For more information about the hearing, contact Oluwafunmilayo Taylor at (202) 622-7180.

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