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3 guidelines for reporting on PPACA risk corridors problems

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Insurance regulators have developed an informal batch of advice about how health insurers should handle accounting for the Patient Protection and Affordable Care Act (PPACA) risk corridors program, now that the U.S. Department of Health and Human Services (HHS) says the program may collect only enough cash to pay about 13 percent of what it’s supposed to pay.

See also: Feds: PPACA risk program may pay just 13% of 2014 claims

The regulators, members of the Emerging Accounting Issues Working Group, part of the National Association of Insurance Commissioners (NAIC), talk about how to reflect the big PPACA risk corridors program shortfall in financial statements in INT 15-01.

In the new document, the working group gives its thoughts on how to apply the formal guidance given in the Statement of Statutory Accounting Principles (SSAP) 107, which explains how to account for the risk-sharing provisions of PPACA.

The Accounting Practices and Procedures Task Force, the NAIC unit that’s the direct parent of the emerging issues working group, expects to hear Jim Armstrong of Louisiana, a working group representative, speak Nov. 20, during the task force session at the NAIC’s fall national meeting in National Harbor, Md.

Another NAIC unit, the Capital Adequacy Task Force, expects to hear from Tim Deno, an American Academy of Actuaries representative who wrote an academy comment letter on INT 15-01, at the fall meeting later on Nov. 20.

Drafters of PPACA created three risk-sharing programs in an effort to protect health insurers, and the PPACA public exchange system, against the effects of the new PPACA ban on medical underwriting and other PPACA changes:

  • A reinsurance program, which uses a broad-based health plan fee to reimburse issuers of fully PPACA-compliant individual coverage for some of the bills incurred by enrollees with catastrophic claims in 2014, 2015 and 2016.

  • A risk corridors program, which is used to use cash from thriving PPACA exchange plan issuers to help struggling exchange plan issuers in 2014, 2015 and 2016.

  • A risk-adjustment program, which is supposed to get cash from plans with low-risk enrollees and transfer the cash to plans with high-risk enrollees.

The reinsurance program collected enough revenue to pay eligible insurers more than they were expecting to receive.

HHS is still collecting the cash it needs to make the risk-adjustment program payments it has promised to make.

The emerging issues working group members note in their interpretation that it’s still not sure how much the risk corridors program will pay out for 2014 obligations based on the first round of risk corridor payables collections, even though HHS announced a “proration rate” of 12.6 percent.

Working group members say, for example, that an insurer that’s deciding how much of its 2014 receivable to write off has to think about the possibility that insurer insolvencies, or insurer withdrawals from the insurance market, could affect risk corridors program funding and reduce the amount the program can pay out, based on the first round of insurer assessments, below 12.6 percent.

See also: What if CMS risk-adjustment bill collectors fail?

The working group members generally take the positions that insurers should try to be conservative when reporting on their interactions with the risk corridors program, not count on getting any chickens before they’re hatched.

For more tips for health insurers drawn from the working group’s risk corridors work, read on. 


1. Think ahead.

Officials at HHS and the HHS division in charge of PPACA implementation, the Centers for Medicare & Medicaid Services (CMS), have said that they were surprised when they found out that the risk corridors program would get much less cash from insurers that owed program payables than it needed to pay the insurers who were hoping to collect on program receivables.

See also: CO-OP exec: ‘The long knives came out’ [With video]

But members of the emerging issues working group and a sister working group were already talking about the need for emphasizing uncertainty about risk corridors program collections in April 2014, when they were drafting an earlier interpretation on how to account for the PPACA risk-sharing provisions.

See also: Official: PPACA risk corridors program will make payments

Correction: An earlier version of this article gave an incorrect year for when regulators were talking about concerns about the PPACA risk corridors program. The year was 2014.


2. Put the 2014 risk corridors program payment shortfall in your financial statements for the first quarter.

Some state insurance regulators seemed to recognize back in July that the risk corridors program might be short on cash.

See also: Louisiana PPACA CO-OP to close

HHS did not actually announce that the program was short on cash until Oct. 1, the day after the end of the federal government’s fiscal year, and the day after the end of the third quarter in the calendar year.

In theory, a company might be able to record the risk corridors shortfall in the fourth quarter of calendar year 2015, or the first quarter in federal fiscal year 2016.

Under SSAP Number 9, which deals with accounting for major events that take place after the official end of an accounting period but before the balance sheet for that period comes out, an insurer should recognize the effects of an event of that type on the balance sheet data, emerging issues working group members say.

Crystal ball

3. Regulators want insurers to avoid making predictions about how much risk corridors money they’ll get for 2014 receivables in 2015 and 2016.

Originally, drafters of INT 15-01 were thinking that they could assume that HHS would collect an amount equal to 12.6 percent of the 2014 risk corridors program obligations total in 2015 and 2016.

HHS has said that it will try to use the cash it collects for the risk corridors program in the second-year collection round and the third-year collection round to make up for any gaps in 2014 collections.

The INT 15-01 drafters said insurers that were owed receivables for 2014 could use the product of three and 12.6 percent, 37.8 percent, as an estimate of the total percentage of the 2014 risk corridors receivable that they would eventually receive.

If, for example, an insurer had hoped to receive $10,000 from the risk corridors program for 12.6 percent, it could estimate that it would eventually receive $3,780 from the program, not just $1,260.

Emerging issues working group members backed away from letting insurers owed 2014 risk corridors receivables assume that they would eventually get 37.8 percent of the amount owed.

And estimated receivables for 2015 and 2016 should be “non-admitted until such time that the prior benefit year is paid in full and until additional proration amounts are confirmed by HHS or other information of a sufficient nature supports that collectibality is probable and reasonable,” the working group says.

See also: 3 ways proposed PPACA risk program rules could trip you up