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Blue Cross Blue Shield Companies Saved Billions with Tax Cuts

Analysis  |  By John Commins  
   June 18, 2018

The impact of tax reform and an overall improvement in earnings resulted in a favorable change to capital and surplus in 2017 of almost $8.8 billion for the aggregated Blues.

It looks like 2017 was a good year for the nation's Blue Cross Blue Shield companies.

A new study from A.M. Best shows that the Blues saved $2.3 billion in 2017 thanks to changes enacted in the Tax Cuts and Jobs Act.

The Blues reported a total change of $4.7 billion to their net deferred income tax on their 2017 year-end statutory statement. That included a "favorable impact to the net deferred income tax compared with $854 million at year-end 2016."

"However, due to the impact of the TCJA many of these companies also reported a negative change in the value of the deferred tax asset, which partially offset the change in the net deferred income tax," the analysis found. "The net effect was a positive $2.3 billion for the Blues in aggregate."

Of the non-profit Blues that saw a favorable net impact to their capital and surplus, as a result of the changes from the TCJA on their 2017 year-end statutory statement:

  • Health Care Service Corp., saw a net effect of $1.1 billion;
     
  • Two companies—Blue Cross Blue Shield of Michigan and Horizon Healthcare Services—had positive effect in excess of $300 million, and several others had a favorable net impact greater than $100 million.

Overall, the analysis found that the impact of tax reform, combined with an overall improvement in earnings, resulted in a favorable change to capital and surplus in 2017 of almost $8.8 billion for the aggregated Blues.

"The combination of strong 2017 earnings with this sizable unexpected positive impact from the TCJA for 2018, as well as several future years, has prompted some Blues to announce major initiatives to direct part of the unexpected income toward the benefit of their members," the analysis said.

In February, Horizon Blue Cross Blue Shield of New Jersey said that its 3.8 million customers will get $150 million in direct "relief" in 2018 as their share of the health plan's $550 million windfall generated by federal tax reforms.

Another $125 million in Horizon's tax savings would go toward long-term initiatives to improve access to behavioral health, primary care, and substance abuse services, and $275 million will be set aside in case Congress takes it back.

Along with the good news, A.M. Best warned that "longer-term commitments to outside causes or insufficient rates may put pressure on the future results should market conditions deteriorate."

"Furthermore, action or pressure from state regulators to spend all or a portion of the tax savings from the TCJA may reduce the benefits in the future," the analysis said. "Despite the unanticipated financial windfall from tax reform, A.M. Best expects the affected Blues will continue to balance growth and profitability to sustain future capital levels."

HCSC Responds

Health Care Services Corp., one of the big winners in the tax cut, said the windfall will be used to improve the insurer's capital position, but that "it is one factor, among many, in our overall financial performance. Tax events do not drive our long-term strategy."

The company said it saw $971 million of its 2017 tax benefit in statutory reserves, in line with guidelines.

While this seems like a large number, HCSC said, the insurer buys and administers approximately $70 billion in healthcare goods and services on behalf of 15 million members each year.

The company also launched a three-year, $1.5 billion Affordable Cures initiative to accelerate healthcare cost reductions for consumers.  

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.


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