Unknown. Final regulations

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--- schema: federal-register doc_type: fedreg source_file: FR-2014-01-07.xml --- 79 4 Tuesday, January 7, 2014 Contents Agriculture Agriculture Department See Food and Nutrition Service PROPOSED RULES Regulatory Agenda: Semiannual Regulatory Agenda, 1112-1120 2013-29628 Alcohol Tobacco Firearms Alcohol, Tobacco, Firearms, and Explosives Bureau PROPOSED RULES Definition of Adjudicated as a Mental Defective and Committed to a Mental Institution, 774-777 2014-00039 Architectural Architectural and Transportation Barriers Compliance Board PROPOSED RULES Regulatory Agenda:

Semiannual Regulatory Agenda, 1214 2013-29639 Consumer Financial Protection Bureau of Consumer Financial Protection PROPOSED RULES Regulatory Agenda: Semiannual Regulatory Agenda, 1242-1244 2013-29701 Centers Disease Centers for Disease Control and Prevention NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals, 828-829 2014-00006 Commerce Commerce Department See International Trade Administration See National Oceanic and Atmospheric Administration PROPOSED RULES Regulatory Agenda:

Semiannual Regulatory Agenda, 1122-1144 2013-29629 Defense Acquisition Defense Acquisition Regulations System NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals, 817-818 2013-31537 2013-31538 Defense Department Defense Department See Defense Acquisition Regulations System PROPOSED RULES Regulatory Agenda: Semiannual Regulatory Agenda, 1146-1148, 1236-1240 2013-29644 2013-29699 NOTICES Meetings: Defense Intelligence Agency National Intelligence University Board of Visitors, 816-817 2014-00005 Education Department Education Department PROPOSED RULES Regulatory Agenda:

Semiannual Regulatory Agenda, 1150-1151 2013-29630 NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals: Written Application for the Independent Living Services for Older Individuals Who are Blind Formula Grant, 818 2013-31591 Energy Department Energy Department See Federal Energy Regulatory Commission PROPOSED RULES Regulatory Agenda: Semiannual Regulatory Agenda, 1154-1155 2013-29631 Environmental Protection Environmental Protection Agency PROPOSED RULES Air Quality State Implementation Plans;

Approvals and Promulgations: Florida; New Source Review - Prevention of Significant Deterioration, 778-784 2014-00041 Regulatory Agenda: Semiannual Regulatory Agenda, 1216-1222 2013-29640 Executive Office of the President See Presidential Documents Federal Aviation Federal Aviation Administration PROPOSED RULES Airworthiness Directives: Pratt and Whitney Canada Corp. Turboprop Engines, 763-764 2014-00029 Federal Communications Federal Communications Commission PROPOSED RULES Regulatory Agenda:

Semiannual Regulatory Agenda, 1246-1280 2013-29703 Federal Deposit Federal Deposit Insurance Corporation PROPOSED RULES Regulatory Agenda: Semiannual Regulatory Agenda, 1282-1287 2013-29649 Federal Energy Federal Energy Regulatory Commission RULES Small Generator Interconnection Agreements and Procedures, 755 C1--2013--28515 NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals, 818-820 2013-31586 Combined Filings, 820-824 2014-00011 2014-00012 2014-00013 2014-00014 Complaints:

US Airways, Inc. v. Colonial Pipeline Co., 824 2014-00015 Filings: Rocky Mountain Natural Gas LLC; SourceGas Distribution LLC, 824-825 2014-00016 License Transfer Applications: Wausau Paper Mills; Brainerd, MN, Public Utilities Commission, 825 2013-31587 Federal Reserve Federal Reserve System PROPOSED RULES Regulatory Agenda: Semiannual Regulatory Agenda, 1290-1292 2013-29647 Federal Trade Federal Trade Commission NOTICES Agreements Containing Consent Orders: AB Acquisition, LLC, 825-828 2013-31224 Fish Fish and Wildlife Service PROPOSED RULES Endangered and Threatened Wildlife and Plants:

Designation of Critical Habitat for Leavenworthia exigua var. laciniata, 796-800 2013-31575 Proposed Endangered Status for the Georgetown Salamander and Salado Salamander, 800-802 2014-00034 NOTICES Endangered Species Permit Applications, 835-839 2014-00002 2014-00017 Food and Drug Food and Drug Administration PROPOSED RULES Cardiovascular Devices: Reclassification of Nonroller-Type Cardiopulmonary Bypass Blood Pumps for Cardiopulmonary and Circulatory Bypass; etc., 765-773 2014-00027 NOTICES Draft Guidance for Industry and Staff;

Availability: Blood Glucose Monitoring Test Systems for Prescription Poin-of-Care Use, 830-831 2014-00023 Self-Monitoring Blood Glucose Test Systems for Over-the-Counter Use, 829-830 2014-00022 Guidance for Industry and Staff; Availability: Qualification Process for Drug Development Tools, 831-832 2014-00028 Food and Nutrition Food and Nutrition Service NOTICES Summer Food Service Program: 2014 Reimbursement Rates, 803-804 2014-00032 General Services General Services Administration PROPOSED RULES Regulatory Agenda:

Semiannual Regulatory Agenda, 1224, 1236-1240 2013-29641 2013-29644 Health and Human Health and Human Services Department See Centers for Disease Control and Prevention See Food and Drug Administration See Health Resources and Services Administration PROPOSED RULES Health Insurance Portability and Accountability Act Privacy Rule and the National Instant Criminal Background Check System, 784-796 2014-00055 Regulatory Agenda: Semiannual Regulatory Agenda, 1158-1168 2013-29632 Health Resources Health Resources and Services Administration NOTICES Agency Information Collection Activities;

Proposals, Submissions, and Approvals, 832-834 2013-31589 2013-31590 Meetings: Council on Graduate Medical Education, 834-835 2013-31588 Homeland Homeland Security Department PROPOSED RULES Regulatory Agenda: Semiannual Regulatory Agenda, 1170-1175 2013-29633 Interior Interior Department See Fish and Wildlife Service See Land Management Bureau PROPOSED RULES Regulatory Agenda: Semiannual Regulatory Agenda, 1178-1180 2013-29634 Internal Revenue Internal Revenue Service RULES Computation of, and Rules Relating to, Medical Loss Ratio, 755-758 2014-00092 International Trade Adm International Trade Administration NOTICES Antidumping Duty Administrative Reviews;

Results, Extensions, Amendments, etc.: Uncovered Innerspring Units from the People's Republic of China, 804-805 2014-00025 Requests for Nominations: Advisory Committee on Supply Chain Competitiveness, 805-806 2013-31598 Sales at Less Than Fair Value; Determinations, etc.: Welded Stainless Pressure Pipe from Malaysia, 808-812 2014-00038 Welded Stainless Pressure Pipe from Thailand, 812-814 2014-00040 Welded Stainless Pressure Pipe from the Socialist Republic of Vietnam, 806-808 2014-00036 Justice Department Justice Department See Alcohol, Tobacco, Firearms, and Explosives Bureau PROPOSED RULES Regulatory Agenda:

Semiannual Regulatory Agenda, 1182 2013-29635 Labor Department Labor Department See Occupational Safety and Health Administration PROPOSED RULES Regulatory Agenda: Semiannual Regulatory Agenda, 1184-1188 2013-29636 NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals: Aerial Lifts Standard in Construction, 843-844 2013-31612 Land Land Management Bureau NOTICES Meetings: Southwest Colorado Resource Advisory Council, 839 2013-30895 Public Land Orders:

Oregon; Application for Withdrawal Extension and Opportunity for Public Meeting, 839-840 2013-31594 Realty Actions: Modified Competitive Sale of Public Land, Lincoln County, NV, 840-842 2013-31597 Updated Policy Regarding the Handling of Expressions of Interest, 842-843 2013-31593 Maritime Maritime Administration NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals: Voluntary Intermodal Sealift Agreement, 892 2013-31565 NASA National Aeronautics and Space Administration PROPOSED RULES Regulatory Agenda:

Semiannual Regulatory Agenda, 1226, 1236-1240 2013-29642 2013-29644 National Labor National Labor Relations Board NOTICES Meetings; Sunshine Act, 854 2014-00093 National Oceanic National Oceanic and Atmospheric Administration RULES Fisheries of the Exclusive Economic Zone Off Alaska: Inseason Adjustment to the 2014 Bering Sea and Aleutian Islands Pollock, Atka Mackerel, and Pacific Cod Total Allowable Catch Amounts, 758-762 2014-00021 NOTICES Fisheries of the Northeastern United States:

Northeast Multispecies Fishery; Approved Monitoring Service Providers, 814-815 2014-00026 Meetings: Fisheries of the South Atlantic; South Atlantic Fishery Management Council, 815 2014-00035 New England Fishery Management Council, 2013-31584 815-816 2013-31585 Takes of Marine Mammals Incidental to Specified Activities: Low-Energy Marine Geophysical Survey in the Dumont d'Urville Sea off the coast of East Antarctica, January to March 2013, 816 C1--2013--31471 National Science National Science Foundation NOTICES Meetings:

Alan T. Waterman Award Committee, 854-855 2014-00003 Meetings; Sunshine Act, 855 2014-00084 Nuclear Regulatory Nuclear Regulatory Commission PROPOSED RULES Regulatory Agenda: Semiannual Regulatory Agenda, 1294-1296 2013-29648 NOTICES Facility Operating Licenses: Applications and Amendments Involving Proposed No Significant Hazards Considerations, etc., 855-859 2013-31544 Meetings; Sunshine Act, 860 2014-00103 Occupational Safety Health Adm Occupational Safety and Health Administration PROPOSED RULES Improve Tracking of Workplace Injuries and Illnesses, 778 2014-00010 NOTICES Applications:

Tully/OHL USA Joint Venture; Permanent Variance and Interim Order, 844-853 2014-00008 Requests for Nominations: Federal Advisory Council on Occupational Safety and Health, 853-854 2014-00031 Personnel Personnel Management Office NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals: Designation of Beneficiary; Federal Employees' Group Life Insurance, 860-861 2013-31503 Presidential Documents Presidential Documents PROCLAMATIONS Special Observances:

National Mentoring Month (Proc. 9073), 749-750 2014-00085 National Slavery and Human Trafficking Prevention Month (Proc. 9074), 751-752 2014-00086 National Stalking Awareness Month (Proc. 9075), 753-754 2014-00087 Regulatory Regulatory Information Service Center PROPOSED RULES Regulatory Agenda: Semiannual Regulatory Agenda; Regulatory Plan, 896-1109 2013-29627 Securities Securities and Exchange Commission PROPOSED RULES Regulatory Agenda: Semiannual Regulatory Agenda, 1298-1302 2013-29708 NOTICES Agency Information Collection Activities;

Proposals, Submissions, and Approvals, 861-863 2013-31609 2013-31610 2013-31611 Self-Regulatory Organizations; Proposed Rule Changes: Chicago Mercantile Exchange, Inc., 865-867 2013-31602 Chicago Stock Exchange, Inc., 869-873, 883-885 2013-31601 2013-31607 International Securities Exchange, LLC, 863-865, 881-882 2013-31599 2013-31604 NASDAQ OMX PHLX, LLC, 888-889 2013-31603 New York Stock Exchange, LLC, 885-887 2013-31606 NYSE Arca, Inc., 873-875 2013-31605 The NASDAQ Stock Market, LLC, 875-880 2013-31608 Topaz Exchange, LLC, 867-869 2013-31600 Small Business Small Business Administration PROPOSED RULES Regulatory Agenda:

Semiannual Regulatory Agenda, 1228-1233 2013-29643 Social Social Security Administration NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals, 889-892 2014-00001 Transportation Department Transportation Department See Federal Aviation Administration See Maritime Administration PROPOSED RULES Regulatory Agenda: Semiannual Regulatory Agenda, 1190-1207 2013-29637 Treasury Treasury Department See Internal Revenue Service PROPOSED RULES Regulatory Agenda:

Semiannual Regulatory Agenda, 1210-1211 2013-29638 NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals, 892-893 2014-00007 Veteran Affairs Veterans Affairs Department NOTICES Exclusive Licenses; Approvals, 893 2014-00048 Separate Parts In This Issue Part II Regulatory Information Service Center, 896-1109 2013-29627 Part III Agriculture Department, 1112-1120 2013-29628 Part IV Commerce Department, 1122-1144 2013-29629 Part V Defense Department, 1146-1148 2013-29699 Part VI Education Department, 1150-1151 2013-29630 Part VII Energy Department, 1154-1155 2013-29631 Part VIII Health and Human Services Department, 1158-1168 2013-29632 Part IX Homeland Security Department, 1170-1175 2013-29633 Part X Interior Department, 1178-1180 2013-29634 Part XI Justice Department, 1182 2013-29635 Part XII Labor Department, 1184-1188 2013-29636 Part XIII Transportation Department, 1190-1207 2013-29637 Part XIV Treasury Department, 1210-1211 2013-29638 Part XV Architectural and Transportation Barriers Compliance Board, 1214 2013-29639 Part XVI Environmental Protection Agency, 1216-1222 2013-29640 Part XVII General Services Administration, 1224 2013-29641 Part XVIII National Aeronautics and Space Administration, 1226 2013-29642 Part XIX Small Business Administration, 1228-1233 2013-29643 Part XX Defense Department, 1236-1240 2013-29644 General Services Administration, 1236-1240 2013-29644 National Aeronautics and Space Administration, 1236-1240 2013-29644 Part XXI Bureau of Consumer Financial Protection, 1242-1244 2013-29701 Part XXII Federal Communications Commission, 1246-1280 2013-29703 Part XXIII Federal Deposit Insurance Corporation, 1282-1287 2013-29649 Part XXIV Federal Reserve System, 1290-1292 2013-29647 Part XXV Nuclear Regulatory Commission, 1294-1296 2013-29648 Part XXVI Securities and Exchange Commission, 1298-1302 2013-29708 Reader Aids Consult the Reader Aids section at the end of this page for phone numbers, online resources, finding aids, reminders, and notice of recently enacted public laws.

To subscribe to the Federal Register Table of Contents LISTSERV electronic mailing list, go to http://listserv.access.gpo.gov and select Online mailing list archives, FEDREGTOC-L, Join or leave the list (or change settings); then follow the instructions. 79 4 Tuesday, January 7, 2014 Rules and Regulations DEPARTMENT OF ENERGY Federal Energy Regulatory Commission 18 CFR Part 35 [RM13-2-000; Order No. 792] Small Generator Interconnection Agreements and Procedures Correction In rule document 2013-28515 appearing on pages 72340-73354 in the issue of Thursday, December 5, 2013, make the following corrections: 1.

On page 73246, in the first column, in footnote 66, “ *See supra* P 0” should read “ *See supra* P 23”. 2. On the same page, in the same column, in footnote 67, “ *See supra* P 0” should read “ *See supra* P 22”. 3. On the same page, in the same column, in footnote 69, “ *See supra* P 0” should read “ *See supra* P 17”. 4. On page 73249, in the third column, in footnote 128, “ *See, e.g., supra* P 0” should read “ *See, e.g., supra* P 54”. 5. On page 73250, in the second column, in footnote 148, “ *See supra* P 0” should read “ *See supra* P 39”. 6.

On the same page, in the third column, in footnote 149, “ *See infra* P 0” should read “ *See infra* P 81”. 7. On page 73256, in the third column, in footnote 226, “ *See infra* P 0” should read “ *See infra* P 237”. 8. On page 73259, in the second column, in footnote 284, “ *See supra* P 0” should read “ *See supra* P 12”. 9. On page 73260, in the first column, in footnote 296, “( *see infra* P 0)” should read “( *see infra* P 186)”. 10. On page 73262, in the first column, in footnote 317, “ *See infra* P 0” should read “ *See infra* P 186”. 11.

On page 73269, in the second column, in footnote 424, “ *See supra* PP 0-0” should read “ *See supra* PP 22-23”. 12. On page 73270, in the first column, in footnote 431, “ *See infra* P 0” should read “ *See infra* P 270”. [FR Doc. C1-2013-28515 Filed 1-6-14; 8:45 am] BILLING CODE 1505-01-D DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1 [TD 9651] RIN 1545-BL05 Computation of, and Rules Relating to, Medical Loss Ratio AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations. SUMMARY: This document contains final regulations that provide guidance to Blue Cross and Blue Shield organizations, and certain other qualifying health care organizations, on computing and applying the medical loss ratio added to the Internal Revenue Code by the Patient Protection and Affordable Care Act. DATES: *Effective Date:* These regulations are effective on January 7, 2014. *Applicability Date:* These regulations apply to taxable years beginning after December 31, 2013.

FOR FURTHER INFORMATION CONTACT: Graham R. Green,

(202)317-6995 (not a toll-free number). SUPPLEMENTARY INFORMATION: Background Section 833 of the Internal Revenue Code

(Code)provides that Blue Cross and Blue Shield organizations, and certain other qualifying health care organizations, are entitled to:

(1)Treatment as stock insurance companies;

(2)a special deduction under section 833(b); and

(3)computation of unearned premium reserves under section 832(b)(4) based on 100 percent, and not 80 percent, of unearned premiums. This document contains final amendments to 26 CFR part 1 (Income Tax Regulations) under section 833(c)(5). Section 833(c)(5) was added to the Code by section 9016 of the Patient Protection and Affordable Care Act (Affordable Care Act), Public Law 111-148 (124 Stat. 119 (2010)), effective for taxable years beginning after December 31, 2009. Section 833(c)(5) provides that section 833 does not apply to an organization unless the organization's medical loss ratio

(MLR)for a taxable year is at least 85 percent. For purposes of section 833, an organization's MLR is its percentage of total premium revenue expended on reimbursement for clinical services provided to enrollees under its policies during such taxable year (as reported under section 2718 of the Public Health Service Act (PHSA)). The Treasury Department and the IRS issued proposed regulations under section 833(c)(5) on May 13, 2013 (78 FR 27873). The Treasury Department and the IRS received four written comments in response to the notice of proposed rulemaking and notice of public hearing. After consideration of all comments, these final regulations adopt the provisions of the proposed regulations with certain modifications, the most significant of which are highlighted in the Summary of Comments and Explanation of Revisions. All comments are available at *www.regulations.gov* or upon request. Summary of Comments and Explanation of Revisions 1. Determining the MLR The proposed regulations generally provided that an organization's MLR with respect to a taxable year is the ratio, expressed as a percentage, of the MLR numerator to the MLR denominator. The MLR numerator was defined as the organization's total premium revenue expended on reimbursement for clinical services provided to enrollees under its policies for the taxable year. The MLR denominator was defined as the organization's total premium revenue for the taxable year, after excluding Federal and State taxes and licensing or regulatory fees and after accounting for payments or receipts for risk adjustment, risk corridors, and reinsurance. The final regulations retain these definitions. a. MLR numerator The proposed regulations provided that the MLR numerator does not include amounts expended for “activities that improve health care quality.” Two commenters requested that the MLR numerator include amounts expended for “activities that improve health care quality” as reported under section 2718 of the PHSA, arguing that Congress intended to include amounts expended for “activities that improve health care quality” in the MLR numerator. Two other commenters agreed with the proposed rule that amounts expended for “activities that improve health care quality” should not be included in the MLR numerator. The final regulations retain the rule in the proposed regulations because the alternative is not supported by the statute. Section 2718 of the PHSA provides that the MLR numerator is based on both “reimbursement for clinical services provided to enrollees” and “activities that improve health care quality.” By contrast, the express language of section 833(c)(5) provides that the MLR numerator is based on “reimbursement for clinical services provided to enrollees” without any reference to “activities that improve health care quality.” Accordingly, the final regulations provide that the MLR numerator in section 833(c)(5) does not include costs for “activities that improve health care quality.” b. Computation of MLR The proposed regulations provided that amounts used for purposes of section 833(c)(5) (that is, total premium revenue and total premium revenue expended on reimbursement for clinical services provided to enrollees) for each taxable year should be determined based on amounts reported under section 2718 of the PHSA for that taxable year and the two preceding taxable years, subject to the same adjustments that apply for purposes of section 2718 of the PHSA. In the preamble to the proposed regulations, the Treasury Department and the IRS requested comments as to whether organizations should, instead of using the three-year period used for purposes of section 2718(b)(1)(B)(ii) of the PHSA, compute their expenses and total premium revenue only for the taxable year for which the computation is being made under section 833(c)(5), and whether adoption of the three-year approach would create difficulties with respect to the computation of the MLR for the 2014 taxable year. Two commenters suggested that each organization described in section 833(c) be permitted a one-time, permanent election to compute its MLR over either the three-year period provided in the proposed regulations or over a one-year period based on the taxable year. The commenters further suggested that if a three-year period is used, transition relief should be provided to phase in the three-year period. In describing the MLR computation under section 833(c)(5), the statute provides that the elements in the computation are to be “as reported under section 2718 of the Public Service Health Act.” The Treasury Department and the IRS have concluded that this cross reference indicates that Congress intended that, to the extent consistent with the express language of section 833(c)(5), the meaning of terms and the methodology used in the MLR computation under section 833(c)(5) should be consistent with the definition of those same terms and the methodology under section 2718 of the PHSA. Section 2718(b)(1)(B)(ii) of the PHSA and the associated regulations issued by the Department of Health and Human Services use a three-year period to compute the medical loss ratio, allowing certain limited adjustments after the end of the year to determine expenses and premium revenue. (See 45 CFR 158.220(b) and 158.140.) Accordingly, the Treasury Department and the IRS have concluded that amounts used for purposes of section 833(c)(5) for each taxable year should be determined based on amounts reported under section 2718 of the PHSA for that taxable year and the two preceding taxable years, subject to the same adjustments that apply for purposes of section 2718 of the PHSA. In light of the comments received, the Treasury Department and the IRS have concluded that transition rules to phase in the three-year period provided in these final regulations are appropriate. Accordingly, the final regulations provide that for the first taxable year beginning after December 31, 2013, an organization's MLR will be computed on a one-year basis. Thus, for the first taxable year beginning after December 31, 2013, an organization's MLR is computed based on its total premium revenue expended on reimbursement for clinical services provided to enrollees for its first taxable year beginning after December 31, 2013, and its total premium revenue for its first taxable year beginning after December 31, 2013. For the first taxable year beginning after December 31, 2014, an organization's MLR will be computed on a two-year basis. Thus, for the first taxable year beginning after December 31, 2014, an organization's MLR is computed based on the sum of its total premium revenue expended on reimbursement for clinical services provided to enrollees for its first taxable year beginning after December 31, 2013, and for its first taxable year beginning after December 31, 2014, and the sum of its total premium revenue for its first taxable year beginning after December 31, 2013, and for its first taxable year beginning after December 31, 2014. For the first taxable year beginning after December 31, 2015, and for all succeeding taxable years, the final regulations provide that the MLR is determined based on amounts reported under section 2718 of the PHSA for that taxable year and the two preceding taxable years, subject to the same adjustments that apply for purposes of section 2718 of the PHSA. The final regulations do not adopt the commenters' suggestion to allow organizations to make an election between the three-year period provided in the proposed regulations or the one-year period based on the taxable year. The statutory framework does not contemplate an election or provide for more than one method for computing the MLR. Further, any election would be administratively burdensome for the IRS. 2. Nonapplication of Section 833 in Case of an Insufficient MLR The proposed regulations provided that the consequences of having an MLR of less than 85 percent (an insufficient MLR) are as follows:

(1)The organization is not taxable as a stock insurance company by reason of section 833(a)(1), but may be taxable as an insurance company if it otherwise meets the requirements of section 831(c);

(2)the organization is not allowed the special deduction set forth in section 833(b); and

(3)if the organization qualifies as an insurance company under section 831(c), it must take into account 80 percent, rather than 100 percent, of its unearned premiums under section 832(b)(4) as it applies to other non-life insurance companies. In response to the proposed regulations, two commenters requested that the consequences of having an insufficient MLR under section 833(c)(5) be limited to the loss of only some of the benefits of section 833. Specifically, commenters posited that an organization that fails the MLR requirement under section 833(c)(5) should not lose its status as an insurance company under section 833(a)(1). Rather, the commenters argued that the organization should only suffer the loss of eligibility for the special deduction in section 833(b) and be subject to the less favorable computation of unearned premium reserves based on 80 percent, rather than 100 percent, of its unearned premiums under section 832(b)(4). Another commenter agreed with the proposed rule that the consequences of having an insufficient MLR under section 833(c)(5) include the loss of automatic stock insurance company status under section 833(a)(1). Section 833(c)(5) provides that “this section [833]” shall not apply to any organization unless the organization satisfies the MLR requirement in section 833(c)(5). This language does not contemplate disallowance of some, but not all, of the benefits associated with treatment under section 833. Because the benefit of automatic stock insurance company status is provided to section 833(c) organizations in section 833(a)(1), this benefit is lost upon a failure to satisfy the MLR under section 833(c)(5). Accordingly, the Treasury Department and the IRS have concluded that for an organization described in section 833(c) that fails to satisfy the MLR requirement under section 833(c)(5):

(1)The organization is not taxable as a stock insurance company by reason of section 833(a)(1), but may be taxable as an insurance company if it otherwise meets the requirements of section 831(c);

(2)the organization is not allowed the special deduction set forth in section 833(b); and

(1)The Secretary of Health and Human Services;

(2)policyholders;

(3)a State Comprehensive Health Insurance Plan or other health related program, foundation, or guarantee fund association; or

(4)a risk adjustment, reinsurance, or risk corridor program under the Affordable Care Act. Another commenter suggested that allowing any rebating of premiums to comply with section 833(c)(5) would fail to address consumers' needs for affordable coverage at the time of purchase. The Treasury Department and the IRS continue to consider whether, and, if so, how to permit organizations to address de minimis failures to satisfy the MLR under section 833(c)(5). 3. No Material Change Commenters requested clarification that an organization's loss of eligibility for treatment under section 833 by reason of section 833(c)(5) will not be treated as a material change in the operations of such organization or in its structure for purposes of section 833(c)(2)(C). Section 833(c) restricts the application of section 833 to any existing Blue Cross or Blue Shield organization, and any other qualifying organization meeting the requirements of section 833(c)(3). Section 833(c)(2)(C) defines the term “existing Blue Cross or Blue Shield organization” to mean any Blue Cross or Blue Shield organization if such organization was in existence on August 16, 1986, such organization was determined to be exempt from tax for its last taxable year beginning before January 1, 1987, and no material change has occurred in the operations of such organization or in its structure after August 16, 1986, and before the close of its current taxable year. The final regulations adopt this suggestion. Consistent with the annual determination of whether an organization's MLR under section 833(c)(5) is at least 85 percent, which allows eligibility for treatment under section 833 to be recovered if lost by reason of section 833(c)(5), the Treasury Department and the IRS have concluded that a change in an organization's eligibility for treatment under section 833 solely by reason of section 833(c)(5) will not be treated as a material change in the operations of such organization or in its structure for purposes of section 833(c)(2)(C). 4. Accounting for Unearned Premiums In Notice 2011-4 (2011-2 IRB 282 (December 29, 2010)) and Rev. Proc. 2011-14 (2011-4 IRB 330 (January 11, 2011)) (both of which are available at *www.irs.gov* ), the Treasury Department and the IRS provided procedures for an organization to obtain automatic consent to change its method of accounting for unearned premiums because of the application of section 833(c)(5). Two commenters raised questions about the continued application of Notice 2011-4. The guidance provided in Notice 2011-4 and Rev. Proc. 2011-14 continues to apply in its current form and is not superseded by these final regulations. See § 601.601(d)(2)(ii)( *b* ). Applicability Date These regulations apply to taxable years beginning after December 31, 2013. Special Analyses It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866, as supplemented by Executive Order 13563. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations and because the regulations do not impose an information collection on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Code, the proposed regulations preceding these regulations were submitted to the Chief Counsel for Advocacy of the Small Business Administration for comments on its impact on small business. No comments were received. Drafting Information The principal author of these regulations is Graham R. Green, Office of Associate Chief Counsel (Financial Institutions & Products). However, other personnel from the Treasury Department and the IRS participated in their development. List of Subjects in 26 CFR Part 1 Income taxes, Reporting and recordkeeping requirements. Adoption of Amendments to the Regulations Accordingly, 26 CFR part 1 is amended as follows: PART 1—INCOME TAXES **Paragraph 1.** The authority citation for part 1 continues to read in part as follows: Authority: 26 U.S.C. 7805 * * * **Par. 2.** Section 1.833-1 is added to read as follows: § 1.833-1 Medical Loss Ratio Under Section 833(c)(5).

(a)*In general.* Section 833 does not apply to an organization unless the organization's medical loss ratio

(MLR)for a taxable year is at least 85 percent. Paragraph

(b)of this section provides definitions that apply for purposes of section 833(c)(5) and this section. Paragraph

(c)of this section provides rules for computing an organization's MLR under section 833(c)(5). Paragraph

(d)of this section addresses the treatment under section 833 of an organization that has an MLR of less than 85 percent. Paragraph

(e)of this section provides the effective/applicability date.

(b)*Definitions.* The following definitions apply for purposes of section 833(c)(5) and this section.

(1)*Reimbursement for clinical services provided to enrollees.* The term *reimbursement for clinical services provided to enrollees* has the same meaning as that term has in section 300gg-18 of title 42, United States Code and the regulations issued under that section (see 45 CFR 158.140).

(2)*Total premium revenue.* The term *total premium revenue* means the total amount of premium revenue (excluding Federal and State taxes and licensing or regulatory fees and after accounting for payments or receipts for risk adjustment, risk corridors, and reinsurance under sections 1341, 1342, and 1343 of the Patient Protection and Affordable Care Act, Public Law 111-148 (124 Stat. 119 (2010)) (42 U.S.C. sections 18061, 18062, and 18063)) as those terms are used for purposes of section 300gg-18(b) of title 42, United States Code and the regulations issued under that section (see 45 CFR Part 158).

(c)*Computation of MLR under section 833(c)(5)* —(1) *In general.* Starting with the first taxable year beginning after December 31, 2015, and for all succeeding taxable years, an organization's MLR with respect to a taxable year is the ratio, expressed as a percentage, of the MLR numerator, as described in paragraph (c)(1)(i) of this section, to the MLR denominator, as described in paragraph (c)(1)(ii) of this section.

(i)*MLR numerator.* The numerator of an organization's MLR is the total premium revenue expended on reimbursement for clinical services provided to enrollees under its policies for the taxable year, computed using a three-year period in the same manner as those expenses are computed for the plan year for purposes of section 300gg-18(b) of title 42, United States Code and regulations issued under that section (see 45 CFR Part 158).

(ii)*MLR denominator.* The denominator of an organization's MLR is the organization's total premium revenue for the taxable year, computed using a three-year period in the same manner as the total premium revenue is computed for the plan year for purposes of section 300gg-18(b) of title 42, United States Code and regulations issued under that section (see 45 CFR Part 158).

(2)*Transition rules.* The transition rules in paragraphs (c)(2)(i) and (c)(2)(ii) of this section apply solely for the first taxable year beginning after December 31, 2013, and the first taxable year beginning after December 31, 2014.

(i)*First taxable year beginning after December 31, 2013.* For the first taxable year beginning after December 31, 2013, the numerator of an organization's MLR is the total premium revenue expended on reimbursement for clinical services provided to enrollees under its policies for the first taxable year beginning after December 31, 2013, and the denominator of an organization's MLR is the organization's total premium revenue for the first taxable year beginning after December 31, 2013.

(ii)*First taxable year beginning after December 31, 2014.* For the first taxable year beginning after December 31, 2014, the numerator of an organization's MLR is the sum of the total premium revenue expended on reimbursement for clinical services provided to enrollees under its policies for the first taxable year beginning after December 31, 2013, and for the first taxable year beginning after December 31, 2014, and the denominator of an organization's MLR is the sum of the organization's total premium revenue for the first taxable year beginning after December 31, 2013, and for the first taxable year beginning after December 31, 2014.

(d)*Failure to qualify under section 833(c)(5)* —(1) *In general.* If, for any taxable year, an organization's MLR is less than 85 percent, then beginning in that taxable year and for each subsequent taxable year for which the organization's MLR remains less than 85 percent, paragraphs (d)(1)(i) through (d)(1)(iii) of this section apply.

(i)*Automatic stock insurance company status.* The organization is not taxable as a stock insurance company by reason of section 833(a)(1), but may be taxable as an insurance company if it otherwise meets the requirements of section 831(c);

(ii)*Special deduction.* The organization is not allowed the special deduction set forth in section 833(b); and

(iii)*Premiums earned.* The organization must take into account 80 percent, rather than 100 percent, of its unearned premiums under section 832(b)(4) as it applies to other non-life insurance companies, provided the organization qualifies as an insurance company by meeting the requirements of section 831(c).

(2)*No material change.* An organization's loss of eligibility for treatment under section 833 solely by reason of section 833(c)(5) will not be treated as a material change in the operations of such organization or in its structure for purposes of section 833(c)(2)(C).

(e)*Effective/applicability date.* This section applies to taxable years beginning after December 31, 2013. John Dalrymple, Deputy Commissioner for Services and Enforcement. Approved: January 2, 2014. Mark J. Mazur, Assistant Secretary of the Treasury (Tax Policy). [FR Doc. 2014-00092 Filed 1-6-14; 8:45 am]

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U.S. Code

9 references not yet in our index

18 CFR 35
26 CFR 1
T.D. 9651
Pub. L. 111-148
124 Stat. 119
45 CFR 158.220(b)
Rev. Proc. 2011-14
45 CFR 158.140
45 CFR 158

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Fed. Reg.Notices

U.S.C.§ 7805

U.S.C.§ 18061

Cite18 CFR 35

Cite26 CFR 1

Treas. Dec.T.D. 9651

Pub. L.Pub. L. 111-148

Stat.124 Stat. 119

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