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Implementation Status

Several IRS notices provide guidance on the application of this section. Notice 2010-79 provides “transitional relief and interim guidance on the computation of an organization’s taxpayer’s Medical Loss Ratio for purposes of section 833, the consequences of nonapplication and changes in accounting method,” according to the IRS. Notice 2011-04  addresses procedures for obtaining automatic consent to change the method of accounting for unearned premiums. Notice 2011-51 and Notice 2012-37 each extend the interim guidance and transitional relief originating in Notice 2010-79 (above).

On May 10, the IRS released a proposed rule regarding Blue Cross and Blue Shield organizations’ computation of their medical loss ratios for purposes of section 833 applicability.  Comments are due on by August 12. The IRS indicated that a public hearing would be held on September 17 at 10 a.m.; requests to speak and outlines of topics are due by August 12.

On August 30, 2013 the IRS published a Notice in the Federal Register cancelling a September 17, 2013, public hearing on a proposed rule relevant to Blue Cross and Blue Shield and certain other organizations, specifying medical loss ratio requirements for eligibility for 833 tax treatment; no one had requested to speak.

On Jan. 7, 2014 the IRS finalized rules governing the computation of Blue Cross and Blue Shield and certain other organizations’ medical loss ratios under section 833(b), Among other provisions, the regulation finalizes a proposal under which “the MLR numerator in section 833(c)(5) does not include costs for ‘activities that improve health care quality.”

On June 22, 2016, the IRS issued final regulations incorporating a technical correction to section 833(c)(5) of the Internal Revenue Code, which was made by the Consolidated and Further Continuing Appropriations Act of 2015.