Statutory Accounting Principles Working Group s3

Ref #2015-54

Statutory Accounting Principles (E) Working Group

Maintenance Agenda Submission Form

Form A

Issue: Update Risk Corridors Disclosures

Check (applicable entity):

P/C Life Health

Modification of existing SSAP

New Issue or SSAP

Description of Issue:

The federal Affordable Care Act (ACA) risk corridors program is a temporary program that is effective for benefit years beginning in 2014 through 2016 and applies to Qualified Health Plans (QHPs) in the individual and small group markets whether sold on or outside of an exchange. The risk corridors program creates a mechanism for sharing risk for allowable costs between the federal government and QHP issuers – collecting charges from the issuer if the issuer’s QHP premiums exceed claims costs of QHP enrollees by a certain amount, and making payments to the issuer if the issuer’s premiums fall short by a certain amount, subject to certain adjustments for taxes, administrative expenses, and other costs and payments. In the event that risk corridors programs collections are not sufficient to cover all the required distributions, the ACA allows the use of other sources of federal funding for the required distributions, subject to the availability of appropriations.

On October 1, 2015, HHS announced proration results for 2014 risk corridors payments. Based on current data from QHP issuers’ risk corridors submissions, issuers will pay $362 million in risk corridors charges, and have submitted for $2.87 billion in risk corridors payments for 2014. As of October 1, 2015, assuming full collections of risk corridors charges, this will result in a proration rate of 12.6 percent. HHS will begin collection of risk corridors charges in November 2015, and will begin remitting risk corridors payments to issuers starting December 2015.

Emerging Accounting Issues (E) Working Group adopted INT 15-0:1 ACA Risk Corridors Collectibility on November 5, 2015 in response to questions of application of the SSAP No. 107—Risk-Sharing Provisions of the Affordable Care Act (SSAP No. 107), guidance for impairment and nonadmission. During the course of the discussion, comments were received from American Academy of Actuaries Health Financial Reporting and Solvency Committee and regulators which recommended updating the risk corridors disclosures.

American Academy of Actuaries Health Financial Reporting and Solvency Committee provided the following comments regarding disclosures:

“It is important for users of the financial statements to understand the magnitude of the unrecognized risk corridor assets to which insurers would be received in the absence of concerns about funding and collectability. While the proposed guidance in paragraph 17 under which insurers would not recognize assets for 2015 risk corridor receivables may be appropriate, users could benefit from a statement disclosing what risk corridor payments for 2015 would be based on their financial results, notwithstanding collectability concerns. Similarly, users would benefit from a disclosure of the remaining amounts to which insurers would be received for 2014 risk corridor payments if collectability were not an issue, over and above the amounts recognized on the financial statements.”

A Wisconsin regulator, Tom Houston, also noted that their analysis work had identified some areas for improvement in the disclosures. This agenda item provides recommendations on expanding the risk corridors disclosures for 2016.

Existing Authoritative Literature:

SSAP No. 107—Risk-Sharing Provisions of the Affordable Care Act (SSAP No. 107), provides accounting for the all three ACA risk sharing programs and includes the following disclosures:

Disclosures

57. The financial statements shall disclose on an annual and quarterly basis beginning in the first quarter of 2014, the assets, liabilities and revenue elements by program regarding the risk-sharing provisions of the Affordable Care Act for the reporting periods which are impacted by the programs including the listing in paragraphs 57.a. through 57.c. Reporting entities shall also indicate if they wrote any accident and health insurance premium, which is subject to the Affordable Care Act risk-sharing provisions. In the event that the balances are zero, the reporting entity should provide context to explain the reasons for the zero balances, including insufficient data to make an estimate, no balances or premium was excluded from the program, etc. Asset balances shall reflect admitted asset balances. The disclosure shall include the following:

a. ACA Permanent Risk Adjustment Program

i. Premium adjustments receivable due to ACA Risk Adjustment

ii. Risk adjustment user fees payable for ACA Risk Adjustment

iii. Premium adjustments payable due to ACA Risk Adjustment

iv. Reported as revenue in premium for accident and health contracts (written/collected) due to ACA Risk Adjustment

v. Reported in expenses as ACA risk adjustment user fees (incurred/paid)

b. ACA Transitional Reinsurance Program

i. Amounts recoverable for claims paid due to ACA Reinsurance

ii. Amounts recoverable for claims unpaid due to ACA Reinsurance (contra-liability)

iii. Amounts receivable relating to uninsured plans for contributions for ACA Reinsurance

iv. Liabilities for contributions payable due to ACA Reinsurance - not reported as ceded premium

v. Ceded reinsurance premiums payable due to ACA Reinsurance

vi. Liability for amounts held under uninsured plans contributions for ACA Reinsurance

vii. Ceded reinsurance premiums due to ACA Reinsurance

viii. Reinsurance recoveries (income statement) due to ACA Reinsurance payments or expected payments

ix. ACA Reinsurance Contributions – not reported as ceded premium

c. ACA Temporary Risk Corridors Program

i. Accrued retrospective premium due from ACA Risk Corridors

ii. Reserve for rate credits or policy experience rating refunds due to ACA Risk Corridors

iii. Effect of ACA Risk Corridors on net premium income (paid/received)

iv. Effect of ACA Risk Corridors on change in reserves for rate credits

It should be noted that the above notes are data captured in annual statement note 24 E(2) and 24E (3).

Activity to Date (issues previously addressed by the SAPWG, Emerging Accounting Issues WG, SEC, FASB, other State Departments of Insurance or other NAIC groups): Emerging Accounting Issues (E) Working Group adopted INT 15-0:1 ACA Risk Corridors Collectibility on November 5, 2015.

Information or issues (included in Description of Issue) not previously contemplated by the SAPWG:

None

Convergence with International Financial Reporting Standards (IFRS):

Not applicable

Staff Review Completed by:

Robin Marcotte

NAIC Staff

Staff Recommendation:

It is staff’s recommendation that the Working Group move this item to the nonsubstantive active listing and expose nonsubstantive revisions to SSAP No. 107 as illustrated below and in the attached spreadsheets. These would be proposed to be in the first quarter 2016 notes. Inclusion in the 2016 quarterly notes would require notification to the Blanks Working Group and would not be data-captured until year-end 2016. Note: both disclosure’s below are illustrated in the following pages, and would be the source for proposal in the annual statement blanks proposal for possible 2016 reporting.

58. In addition, beginning in annual 2014 and both quarterly and annual thereafter, a roll forward of prior year ACA risk-sharing provisions specified asset and liability balances shall be disclosed in the annual statutory Notes to Financial Statements, as illustrated in Appendix B. Note for the roll forward illustration, assets shall be reflected gross of any nonadmission. The reasons for adjustments to prior year balances (i.e. federal audits, revised participant counts, information which impacted risk score projections, etc.) shall also be disclosed. For year-end 2014, all columns and rows are expected to be zero since 2014 is the first year that a receivable or liability will be recorded. For reporting periods on or after December 31, 2016, the risk corridors roll forward is amended to require disclosure of the risk corridors asset and liability balances and subsequent adjustments by program benefit year. The receivable or payable for in the roll-forward will reflect the prior end balance for the specified benefit year.

59. For reporting periods ending on or after December 31, 2016 for both quarterly and annual reporting the following information is required for risk corridors balances by program benefit year:

a. Estimated amount to be filed or final amounts filed with federal agency;

b. Amounts impaired or amounts not accrued for other reasons (not withstanding collectability concerns);

c. Amounts received from federal agency;

d. Asset balance gross of nonadmission;

e. Nonadmitted amounts;

f. Net admitted assets.

Status:

On November 19, 2015, the Statutory Accounting Principles (E) Working Group moved this item to the nonsubstantive active listing and exposed nonsubstantive revisions to SSAP No. 107, as illustrated above, and to update the disclosures regarding ACA risk corridors program with a comment period ending Jan. 15, 2016. The disclosures have a proposed effective date of first quarter 2016. The attached spreadsheets would be the source for the preparation of the annual statement blanks proposal for data capture in the in the 2016 annual statement.

Ref #2015-54

To supplement Footnote 24 E (2) and address the Academy's disclosure comments:
Note: numbers are just examples
Purpose is to disclose 1) ACA Risk Corridors Receivables balances by Rick Corridors program year and 2) what risk corridor receivables would be based on insurer's financial results, notwithstanding collectability concerns (amount in column (A)).
For ACA Risk Corridors Receivables as of the reporting date, disclose the following by Risk Corridors program year:
(A) / (B) / (C) / (D)=(A)-(B)-(C) / (E) / (F)=(D)-(E)
Risk Corridors Program Year: / Estimated Amount to be Filed or Final Amount Filed with CMS / Non-Accrued Amounts for Impairment or Other Reasons* / Amounts received from CMS / Asset Balance (Gross of Non-admissions) / Non-admitted Amount / Net Admitted Asset
2014 / 16,000 / - / - / 16,000 / 13,984 / 2,016
2015 / 30,000 / 5,000 / - / 25,000 / 25,000 / -
2016
Total / 46,000 / 5,000 / 41,000 / 38,984 / 2,016
Note: total of Asset Balance (D) must equal the total of Footnote 24 E (3) line C.3 col 9.
Note: total of Net Admitted Asset (F) must equal Footnote 24 E (2) line C.1.
* Notwithstanding federal government collectibility concerns
To supplement Footnote 24 E (3):
Purpose is to disclose Risk Corridors Receivables and Payables by Risk Corridors Program Year (gross of any non-admissions).
The Payables columns should address the other side of the Academy's comment since insurer payables are disclosed by year.
Accrued as of December 31 of the prior reporting year / Received or Paid as of the Current Period on Business Written For the Risk Corridors Program Year / Differences / Adjustments / Unsettled Balances as of the
Reporting Date
Risk Corridors Program Year: / Accrued Less Payments (Col 1 - 3) / Accrued Less Payments (Col 2 - 4) / Balances / Balances / Cumulative Balance (Col 1–3+7) / Cumulative Balance (Col 2–4+8)
1 / 2 / 3 / 4 / 5 / 6 / 7 / 8 / 9 / 10
Receivable / (Payable) / Receivable / (Payable) / Receivable / (Payable) / Receivable / (Payable) / Ref / Receivable / (Payable)
2014 / Accrued Retrospective premium
Reserve for rate credits or policy experience rating refunds
2015 / Accrued Retrospective premium
Reserve for rate credits or policy experience rating refunds
2016 / Accrued Retrospective premium
Reserve for rate credits or policy experience rating refunds
Total for Risk Corridors (1) / (2)
Note: (1) totals for all columns must agree with Footnote 24 E (3) line c.3.
(2) Payable total must agree with Footnote 24 E (2) line c. 2.

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