- 18 -
to pay COB savings amounts (i.e., amounts that primary insurers
were responsible for and pay) and that Blue Cross never acquired
fixed and genuine rights of recovery and salvage with regard
thereto. We again agree with respondent.
The applicable regulation under section 832 requires that
unpaid losses, to be taken into account in computing losses
incurred, are to represent a fair and reasonable estimate of the
amount health insurance companies actually will be required to
pay, not of what they theoretically might have to pay. Section
1.832-4(b), Income Tax Regs., in relevant part provides:
Every insurance company to which this section applies
must be prepared to establish to the satisfaction of the
district director that the part of the deduction for “losses
incurred” which represents unpaid losses at the close of the
taxable year comprises only actual unpaid losses. * * *
These losses must be stated in amounts which, based upon the
facts in each case and the company's experience with similar
cases, represent a fair and reasonable estimate of the
amount the company will be required to pay. * * *
The evidence shows that in the years before 1990, Blue Cross
consistently used the wait-and-pay approach and did not pay
(unless in error), reserve for, or expect to make payments with
respect to its COB savings.
Blue Cross argues that because it could, after 1989, elect
to use the pay-and-pursue approach or that primary insurers could
fail to make their payments (e.g., in the event a primary insurer
becomes insolvent), Blue Cross’ COB savings, without the benefit
Page: Previous 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 NextLast modified: May 25, 2011