Assurant 2015 Annual Report Download - page 48

36 ASSURANT, INC. – 2015 Form 10-K
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Health Insurance Premium Rebate Liability
The Affordable Care Act was signed into law in March 2010� One
provision of the Affordable Care Act, effective January 1, 2011,
established a minimum medical loss ratio (“MLR”) designed
to ensure that a minimum percentage of premiums is paid for
clinical services or health care quality improvement activities�
The Affordable Care Act established an MLR of 80% for individual
and small group business and 85% for large group business� If
the actual loss ratios, calculated in a manner prescribed by
the Department of Health and Human Services (“HHS”), are
less than the required MLR, premium rebates are payable to
the policyholders by August 1 of the subsequent year�
The Assurant Health loss ratio reported in “Results of Operations”
below (the “GAAP loss ratio”) differs from the loss ratio
calculated under the MLR rules. The most signicant differences
include: the fact that the MLR is calculated separately by
state, legal entity and type of coverage (individual or group);
the MLR calculation includes credibility adjustments for
each state/entity/coverage cell, which are not applicable
to the GAAP loss ratio; the MLR calculation applies only to
some of our health insurance products, while the GAAP loss
ratio applies to the entire portfolio, including products not
governed by the Affordable Care Act; the MLR includes quality
improvement expenses, taxes and fees; changes in reserves
and Affordable Care Act risk mitigation program amounts are
treated differently in the MLR calculation; the MLR premium
rebate amounts are considered adjustments to premiums for
GAAP reporting whereas they are reported as additions to
incurred claims in the MLR rebate estimate calculations; and
the MLR is calculated using a rolling three years of experience
while the GAAP loss ratio represents the current year only�
Assurant Health has estimated the 2015 impact of this regulation
based on denitions and calculation methodologies outlined
in the HHS regulations and guidance� The estimate was based
on separate projection models for individual medical and
small group business using projections of expected premiums,
claims, and enrollment by state, legal entity and market for
medical businesses subject to MLR requirements for the MLR
reporting year� In addition, the projection models include
quality improvement expenses, state assessments, taxes, and
estimated impacts of the Affordable Care Act risk mitigation
programs (commonly referred to as the “3R’s”)� The premium
rebate is presented as a reduction of net earned premiums
in the consolidated statement of operations and included in
unearned premiums in the consolidated balance sheet�
Affordable Care Act Risk Mitigation Programs
Beginning in 2014, the Affordable Care Act introduced new and
signicant premium stabilization programs. These programs,
discussed in further detail below, are meant to mitigate the
potential adverse impact to individual health insurers as a
result of Affordable Care Act provisions that became effective
January 1, 2014� A three-year (2014-2016) reinsurance
program provides reimbursement to insurers for high cost
individual business sold on or off the public marketplaces�
The reinsurance entity established by HHS is funded by a
per-member reinsurance fee assessed on all commercial
medical plans, including self-insured group health plans� Only
Affordable Care Act individual plans are eligible for recoveries
if claims exceed a specied threshold, up to a reinsurance
cap� Reinsurance contributions associated with Affordable
Care Act individual plans are reported as a reduction in net
earned premiums in the consolidated statements of operations,
and estimated reinsurance recoveries are established as
reinsurance recoverables in the consolidated balance sheets
with an offsetting reduction in policyholder benets in the
consolidated statement of operations� Reinsurance fee
contributions for non-Affordable Care Act business are reported
in underwriting, general and administrative expenses in the
consolidated statement of operations�
A permanent risk adjustment program transfers funds from
insurers with lower risk populations to insurers with higher risk
populations based on the relative risk scores of participants
in Affordable Care Act plans in the individual and small group
markets, both on and off the public marketplaces� Based
on the risk of its members compared to the total risk of all
members in the same state and market, considering data
obtained from industry studies, the Company estimates its
year-to-date risk adjustment transfer amount� The Company
records a risk adjustment transfer receivable (payable) in
premiums and accounts receivable (unearned premium) in the
consolidated balance sheets, with an offsetting adjustment
to net earned premiums in the consolidated statements of
operations when the amounts are reasonably estimable and
collection is reasonably assured�
A three-year (2014-2016) risk corridor program limits insurer
gains and losses by comparing allowable medical costs to
a target amount as dened by HHS. This program applies
to a subset of Affordable Care Act eligible individual and
small group products certied as Qualied Health Plans.
The public marketplace can only sell Qualied Health Plans.
In addition, carriers who sell Qualied Health Plans on
the public marketplace can also sell them off the public
marketplace� Variances from the target amount exceeding
certain thresholds may result in amounts due to or due
from HHS� During 2015, the Company participated in the
federal insurance public marketplaces so the risk corridor
program is applicable� However, as the current full funding
for this program is unclear at this time, no accruals were
established for any receivable amounts from this program
for 2015, so there was no impact on the Company’s 2015
operations� The Company does not anticipate any payables
into this program for 2015�