OLDWICK, N.J.--(BUSINESS WIRE)--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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