Health insurers -- and other insurers -- have persuaded state insurance accounting regulators to rethink proposed rules for reporting on the money coming from the big new federal health risk management programs.
Life insurers and property-casualty insurers joined health insurers in arguing that the original proposal could have eventually hurt many different types of insurers, not just health insurers, by creating a new class of "nonadmitted assets": "difficult to estimate" assets.
Members of the Accounting Practices and Procedures Task Force, part of the National Association of Insurance Commissioners (NAIC), decided earlier this week at the NAIC's summer meeting in Louisville, Ky., to have the NAIC staff redraft "Accounting for the Risk-Sharing Provisions of the Affordable Care Act," the issue paper containing the provision.
Originally, drafters had called for a health insurer to treat the money it expects to get from the Patient Protection and Affordable Care Act (PPACA) risk adjustment program and the PPACA risk corridors program as an "admitted asset" only after the government entity managing the program confirms that a payment was coming.
See also: Regulators unsure about PPACA risk programs.
Now, the NAIC staff is supposed to replace the draft provision that would have kept estimated risk program payments out of admitted assets. The staff is supposed to replace the nonadmission approach with "criteria that incorporate conservatism and sufficiency of data" -- or, rules requiring the health insurer to show that it has evidence to support its risk program payment estimate and tried to be careful when it came up with the estimate.
Regulators admit an asset when they believe an insurer can probably use the asset to meet obligations to policyholders. An insurer may have little or no ability to use nonadmitted assets when showing they meet a state's solvency standards.
Drafters of PPACA created three new programs -- the "Three R's programs" -- to help health insurers handle big, PPACA-related shifts in medical claim risk: a temporary reinsurance program, the temporary risk corridors program, and the permanent risk adjustment program.
- The reinsurance program is supposed to cover part of the claims for high-cost enrollees. For 2014, the program is supposed to cover 80 percent of the cost of a patient's claims over a $45,000 attachment point, or reinsurance deductible, and below a $250,000 cap.
- The risk corridors program is supposed to use money from health insurers with unusually good underwriting results to help PPACA exchange plan issuers with unusually bad underwriting results.
- The risk-adjustment program is supposed to use money from health plans with unusually young, healthy, low-risk enrollees to help plans with high-risk enrollees.
The NAIC has already issued Three R's accounting guidance for 2014. The new draft risk program paper would apply in the future.
Several commenters noted that, in the past, insurance statutory accounting guidelines have classified assets as nonadmitted only when the assets could not be used to fulfill policyholder obligations or when other parties have claims on the assets.
America's Health Insurance Plans (AHIP) and the BlueCross BlueShield Association submitted a joint letter opposing the nonadmission proposal. Max McGee, an AHIP representative, and Clayton Herbert, a representative for the Blues, said the NAIC should come up with some approach for Three R's reporting other than creating a third category of nonadmitted assets.
"Non-admitting the receivables will not address the case where a reporting entity has underestimated a liability," McGee and Herbert write. "Non-admission does not really address the underlying concern."
Representatives for the new Consumer Operated and Oriented Plans (CO-OPs) argued that the nonadmission approach would hurt new insurers that are depending heavily on PPACA exchange plan sales. "Treating the receivables as 'non-admitted' will instantly diminish available regulatory capital and may push some carriers into supervision or insolvency," according to Nathan Johns, the chief financial officer of Arches Health Plan, a Utah CO-OP.
D. Keith Bell of Travelers and Rose Albrizio of AXA Equitable wrote to say that property-casualty insurers and life insurers fear creating a nonadmission category for hard-to-estimate assets would create a "dangerous precedent for statutory accounting which goes beyond health insurance companies."