As a result of the changes from the Tax Cuts and Jobs Act (TCJA), Blue
Cross Blue Shield companies (Blues) reported a total change of $4.7
billion to their net deferred income tax on their 2017 year-end
statutory statement, according to a new A.M. Best briefing.
The Best’s Briefing, “Positive Impact of Tax Reform for Blue
Cross Blue Shield Plans,” states that the 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 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
& 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. The impact of tax reform, combined with an overall improvement
in earnings, resulted in a favorable change to capital & 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.
A.M. Best views favorably the stronger financial results and higher
capital balances at the Blues. However, there is a concern 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. 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.
To access the full copy of this briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=274751.
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