Insurance accounting is like gravity: It seems abstract and unimportant, until it breaks your leg.

State insurance regulators and account experts are now hammering out some of the rules that will govern how health insurers will use, and report on use, of the Patient Protection and Affordable Care Act (PPACA) “three R’s” programs: The big new commercial health insurance risk-management programs.

The Statutory Accounting Principles Working Group — a body at the National Association of Insurance Commissioners (NAIC) that, in effect, shapes how financial gravity makes insurer profits rise and fall — is asking for comments on a paper about how insurers ought to account for the three-year PPACA reinsurance program, the three-year PPACA risk corridors program, and the permanent PPACA risk corridors program. Comments are due Nov. 10.

The reinsurance program is supposed to use cash from all medical insurers, and all self-insured plans with third-party administrators (TPAs), to protect issuers of PPACA-compliant individual coverage against the risk of covering enrollees with catastrophic claims.

The risk corridors program is supposed to use cash from issuers of PPACA-compliant qualified health plans (QHPs) with good underwriting results to shore up QHP issuers with poor underwriting results. 

The risk-adjustment program is supposed to use cash from PPACA-compliant individual and small-group plans with relatively low-risk enrollees to compensate issuers with relatively high-risk enrollees.

Health insurers are still not sure exactly how the three R’s programs will work — or whether they will work. The U.S. Government Accountability Office (GAO) recently suggested that the U.S. Department of Health and Human Services (HHS) might need congressional approval to make risk corridors program payments for the 2014 plan year in 2015. 

But regulators in some states are requiring insurers to build PPACA reinsurance program payments into 2015 rates.

Here’s a look at a few of the ways the NAIC three R’s accounting rules could hit you and your health insurance clients if you doze off.

Man walking on a tightrope toward confusion

1. You could miss out on important, data-filled, not-very-public reports that give insiders early information about how health insurers are doing.

In one section of the NAIC proposal, for example, the authors suggest that reporting entities should provide “sufficient data” to support their estimates of how much cash they should be getting from risk adjustment program.

The “sufficient data” section of a statutory accounting report is supposed to include information about “patient encounter and diagnosis code date” and patient default risk scores.

The recommendation underscores how closely agents and brokers may have to pay attention to health insurers’ statutory accounting reports. The reports may suddenly include far more information on what kinds of people an insurer is covering and what kinds of claims the insurer is paying. 

Yellow police tape that says, "Keep out."

2. Brokers and agents may see wild swings in premiums, as insurers make decisions about whether they can or cannot collect the risk program money they were expecting to collect.

Insurance regulators normally let insurers assume that they will get most of the money they are expecting to get better-established government programs.

Regulators are still deciding just when they will “admit” the cash that’s supposed to be coming from the three R’s programs.

In a section on the risk corridors program, for example, regulators say an insurer can count risk corridors program receivables as admitted assets “until determination of impairment or payment denial is received from the governmental entity or government-sponsored entity administering the program.”

If the insurer decides the risk corridors receivables are uncollectible, “any uncollectible receivable shall be written off and charged to income in the period the determination is made.”

A hand erasing something on a chalkboard.

3. Disputes over just what risk program money insurers can, must and cannot admit may gum up health insurers’ operations and slow efforts to develop rates.

In a discussion section, NAIC paper drafters note that this version of the paper note that they have tried to take a conservative approach to what insurers can admit. “Impairment evaluations were stressed and nonadmission of amounts after notification of denial even if appeals are pending was added,” officials say.

Whether the actual rules end up leaning toward the tighter side or the looser side, insurers, accountants and regulators may face long, distracting fights over what the numbers ought to be.