NAIC meeting update: Guidance coming on risk corridors accounting issues

The National Association of Insurance Commissioners (NAIC) Statutory Accounting Principles (E) Working Group and the Emerging Accounting Issues (E) Working Group held a joint conference call October 19, 2015, during which accounting issues related to the risk corridors program (Section 1342 of the Affordable Care Act) were discussed. The discussion was primarily in response to an announcement by the US Department of Health and Human Services (HHS) on October 1, 2015, of program proration results.

Based on current data from Qualified Health Plan 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%.

Industry concerns

There was diversity in practice regarding the accrual of 2014 risk corridors receivables for the first two quarters of 2015. Some entities did not accrue material amounts for the risk corridors receivables or did not accrue any amount due to the lack of federal government appropriations, pursuant to the requirement in Statement of Statutory Accounting Principle No. 107, Risk-Sharing Provisions of the Affordable Care Act (SSAP No. 107) which requires that preparers be conservative and diligent in developing their estimates. Other entities appear to have accrued the full amount of funds estimated to be received under the risk corridors program. For some entities the accrued receivables represent a material amount of surplus and uncollectability or delayed collectability represents a solvency concern.

At a minimum, impairment analysis and/or updated estimates are required under SSAP No. 107 for the 2014 risk corridors receivables. In determining the amount to be impaired, one issue identified is that 2015 and 2016 collections may not be sufficient to cover the full 2014 program requests.

Guidance on accounting issues coming

During the joint conference call, it was determined that the Emerging Accounting Issues (E) Working Group will issue an interpretation on the following accounting issues to promote consistent and appropriate reporting of risk corridors receivables:

Determining the amount of impairment

The 2015 and 2016 program collections may not be sufficient to fund the shortfall of 2014 program results. Therefore, the accounting issue identified is how to determine the appropriate amount that should be impaired.


A reasonable and probable expectation may exist that the 2015 and 2016 program collections will cover some portion of the 2014 benefit year shortfall. The accounting issue identified is whether nonadmittance should be applied to the 2014 program receivables exceeding the 12.6% prorated amount even if an entity has a reasonable and probable expectation of payment in excess of the confirmed 12.6%.

Timing of impairment or nonadmittance recognition

Although the HHS notice was not published until October 1, 2015, indications of funding shortfalls related to the risk corridors program existed as early as 2014. The accounting issue identified is whether impairment recognition should be reflected in the September 30, 2015 financial statements.

Accrual of 2015 and 2016 program receivables

Given current funding shortfalls, there is question as to whether receivables related to benefit years 2015 and 2016 should continue to be estimated.

Initial interpretation draft exposed for comments through November 1, 2015

The Emerging Accounting Issues (E) Working Group has directed staff to expose an initial interpretation indicating that risk corridors receivables should be impaired and/or nonadmitted to reflect only the 12.6% proration for the 2014 benefit year, with adjustment being recognized in the September 30, 2015 financial statements. Furthermore, no further receivables should be recognized for 2015 and 2016 benefit years. The interpretation will be exposed for comment through November 1, 2015.

Materials from the joint conference call can be found on the NAIC website within the Committees & Activities homepage:

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