Max Baucus: “I want to talk a moment about one of the only retroactive tax provisions in the Patient Protection and Affordable Care…”

“I want to talk a moment about one of the only retroactive tax provisions in the Patient Protection and Affordable Care Act, Section 9016. This one deals with the special deductions given to the many nonprofit Blue Cross Blue Shield organizations which are no longer exempt from Federal income tax. Under section 833 of the Internal Revenue Code, these organizations receive a 25 percent deduction for claims and expenses and an exception from the--otherwise applicable--20 percent reduction in the deduction for unearned premium reserves. Effective January 1 of this year, these non-profit Blue Cross Blue Shield organizations must now meet a medical loss ratio of 85 percent or higher in order to take advantage of the tax benefits of section 833. This provision was included to ensure that recipients of this special deduction actually spend out most of their premium income on the people they insure and not on administrative fees or executive compensation. But I want to clarify two issues here. First, it was our intention that, in calculating the medical loss ratios, these entities could include both the cost of reimbursement for clinical services provided to the individuals they insure and the cost of activities that improve health care quality.”