According to a proposed rule released by the Internal Revenue Service (IRS), "activities that improve health quality" can not be used to determine Blue Cross and Blue Shield's Medical Loss Ratio (MLR) in regards to obtaining their tax-exempt status. According to the Affordable Care Act (ACA), insurance companies lose their tax privilege under tax code Section 833 and the MLR if they do not spend 85% of their premium revenue on enrollee medical services. Until this proposed rule was released, interim guidance permitted insurance companies to count health care quality activities toward their 85%.

The Internal Revenue Service (IRS) recently published a notice giving health organizations another year to comply with the medical loss ratio (MLR) provision enacted by the Affordable Care Act (ACA). Under the MLR provision, Blue Cross Blue Shield organizations and others that meet certain tax code requirements could lose special tax treatment under Section 833 if the organization's MLR during the taxable year is not less than 85 percent. For purposes of Section 833, an organization's MLR is equal to the "percentage of total premium revenue expended on reimbursement for clinical services provided to enrollees under its policies during such taxable year." IRS plans to issue rules specific to MLR, but the industry needs more time to digest related final rules from the Department of Health and Human Services (HHS). Those rules were issued in December 2011. Comments on the notice are requested by September 10 of this year.

The Centers for Medicare & Medicaid Services (CMS), a department within the U.S. Department of Health and Human Services (HHS), released final rules on Friday May 11th requiring insurers to notify subscribers when the medical loss ratio (MLR) provision of the Affordable Care Act (ACA) is met or exceeded for spending on medical claims or quality improvements. The December 2011 interim final rule and final rule on MLR only required that notices be sent to policyholders when insurers did not meet the MLR requirements. The ACA requires both individual and small group plans to meet the MLR requirements by spending at least 80 percent of premiums on medical claims or quality improvements. Large plans are required to spend at least 85 percent. Beginning in August of 2012, insurers must refund the difference to consumers. The goal of the notice is to educate consumers regarding the MLR measures and to help consumers know that the majority of premium payments go towards health care, as opposed to advertising, executive bonuses, or administrative overhead costs. HHS said the rule is not expected to have an economic impact of more than $100 million a year.

The Center for Consumer Information and Insurance Oversight (CCIIO), a division of the Centers for Medicare and Medicaid Services (CMS) recently released a bulletin providing medical loss ratio (MLR) guidance. Section 2718 of the Public Health Service Act (PHS Act), as added by the Affordable Care Act (ACA), requires health insurance issuers to submit a MLR report to the Secretary. The PHS Act also requires issuers to provide a rebate to enrollees if the issuer’s MLR is less than the applicable percentage established in the PHS Act. The CCIIO bulletin covers the following topics:

• Applicability of the Medical Loss Ratio to Certain Types of Plans
• Employer Groups of One
• Counting Employees for Determining Market Size
• Individual Association Policies
• Offering Policyholders a “Premium Holiday”
• Reinsurance and Reporting
• Exchange User Fees
• States With a Higher Medical Loss Ratio Standard
• “Mini-Med” Experience – Application of the Adjustment
• Form of Rebate

CMS issued a final rule implementing MLR requirements and an interim final rule implementing MLR rebate requirements in December 2011.