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Sometimes, it's good to be Blue (Cross Blue Shield)

Blue Cross and Blue Shield's clout in Washington was in evidence last week as Congress passed a massive spending bill to keep the government operating into next year.

The $1.1 trillion budget deal that kept the federal government's lights on included a slew of non-spending-related provisions, from the repeal of an intricate banking regulation to a measure that relaxed lower-salt food offerings in school lunch programs.

One of the last pages of the bill also included a line about the “modification of treatment of certain health organizations.” The wonky text essentially provided a break for BCBS plans, although they are not mentioned by name.

Under the Patient Protection and Affordable Care Act, health plans are allowed to count activities that relate to improving healthcare quality toward their 85% medical-loss ratio, the figure that dictates how much of their premium revenue must be spent on medical care. But because BCBS plans have their own separate corporate tax rules, those quality improvement efforts didn't count toward their medical-loss ratio. The spending bill provision more or less addressed that.

The interesting part of that fix is the fact that the Blues have their own tax deductions built into the IRS codebook. Tom Coburn, the outgoing Republican senator and physician from Oklahoma, released a report this month that detailed hundreds of “special interest” tax breaks in the U.S. tax code. The Blues appear on pages 172-173.

Coburn's report examines two key deductions that BCBS plans receive. The more important deduction involved a special write-off. BCBS plans are able to deduct the difference between 25% of all their health-related expenses and their surplus from the prior year, presumably to help build up their reserves for future claims, said Loren Adler, a research director at the Committee for a Responsible Federal Budget.

Coburn estimated that the deductions for BCBS plans cost the federal government $400 million in annual revenue.

The Blue Cross and Blue Shield Association, which spent almost $11 million on lobbying in 2013 according to the Modern Healthcare lobbying database, e-mailed a response to Coburn's report:

“In 1986, Congress required nonprofit Blue Cross Blue Shield health insurance companies to pay federal income taxes—making these plans the only nonprofit health insurance entities that pay federal income taxes. In fact, there are virtually no other nonprofit entities in any industry that pay federal income tax. Since this law was enacted, Blue Cross Blue Shield companies have paid billions in federal income taxes.”

Indeed, the Blues still pay federal income taxes, but it's “$400 million less (annually) than other plans do,” Adler said.

Follow Bob Herman on Twitter: @MHbherman


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