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.