Senate reform bill offers tax break for nonprofit health plans

While few health plans would qualify at present, the insurance industry won at least a small break from a tax imposed by the Senate's newly-approved health reform bill. On the other hand, the bill does impose minimum medical spending requirements for all health plans, a provision that's unlikely to sit well with health plan CEOs.

To win over fence-sitters, Senate Democrats crafted a compromise under which some nonprofit health plans could win an exemption from a new $6.7 billion tax included in the bill. Under the terms of the deal, nonprofits would need to meet a set of requirements to merit the exemption, including a minimum level of spending on medical expenses.

However, the bill sets a high bar for medical spending. Right now, health plans spend an average of 87 percent of premiums on care, according to trade group America's Health Insurance Plans. To meet the Senate's criteria, however, nonprofit plans will have to spend 92 percent of premiums on medical expenses, a level few plans reach at the moment.

Meanwhile, the Senate bill sets minimum spending numbers--known as medical-loss ratios--at 85 percent for large-company coverage, and 80 percent for small group and individual policies. While health plans can work around this number by playing with the definition of "medical expenses"--a term that's not precisely defined in the legislation--the rule may pose initial challenges for the industry.

To get more information on the compromise:
- read this Wall Street Journal piece (sub. req.)

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