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1990 Change in the Tax Code
Generally, section 832(c)(4) allows health insurance
companies a deduction from taxable income for losses incurred.
For years prior to 1990, losses incurred were to be calculated by
health insurance companies based on losses paid during the year,
less “salvage” actually recovered during the year (i.e., less
amounts recovered from third-party tortfeasors or others relating
to claims they had paid), plus an adjustment for any increase or
decrease in estimated incurred but unpaid losses. See sec.
832(b)(5)(A), I.R.C. (1986).
For years prior to 1990, in their calculations of incurred
but unpaid losses, health insurance companies had the option of
taking into account estimated recoveries from third-party
tortfeasors and other health insurance companies. If health
insurance companies elected to not reduce the calculations of
their estimated incurred but unpaid losses by estimated
recoveries, the health insurance company calculations were
referred to as calculations of “unpaid losses gross of estimated
recoveries”. If health insurance companies elected to reduce the
calculations of their estimated incurred but unpaid losses by
estimated recoveries, the health insurance company calculations
were referred to as “unpaid losses net of estimated recoveries”.
In 1990, however, Congress amended section 832(b)(5)(A) for
years beginning January 1, 1990, to require all health insurance
companies, in calculating estimated incurred but unpaid losses
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Last modified: May 25, 2011