Health Net 2015 Annual Report Download - page 186

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
F-25
As part of our ongoing estimation process, we consider information as it becomes available at interim dates along
with our actuarially determined expectations, and we update our estimates incorporating such information as
appropriate.
We estimate and recognize adjustments to our health plan services premium revenue for the risk adjustment
provision by projecting our ultimate premium for the calendar year. Such estimated calendar year amounts are
recognized ratably during the year and are revised each period to reflect current experience. We record receivables and/
or payables and classify the amounts as current or long-term in the consolidated balance sheets based on the timing of
expected settlement.
Risk Corridor—The temporary risk corridor program will be in place for three years and applies to individual
and small group business operating both inside and outside of the exchanges. The risk corridor provisions limit health
insurers' gains and losses by comparing allowable medical costs to a target amount, each defined/prescribed by HHS,
and sharing the risk for allowable costs with the federal government. Variances from the target exceeding certain
thresholds may result in HHS making additional payments to us or require us to make payments to HHS.
We estimate and recognize adjustments to our health plan services premium revenue for the risk corridor
provision by projecting our ultimate premium for the calendar year. Such estimated calendar year amounts are
recognized ratably during the year and are revised each period to reflect current experience, including changes in risk
adjustment and reinsurance recoverables. We record receivables and/or payables and classify the amounts as current or
long-term in the consolidated balance sheets based on the timing of expected settlement.
HHS has recognized that it is obligated to make the risk corridors program payments without regard to budget
neutrality in both regulations and guidance. On October 1, 2015, HHS acknowledged a shortfall in the payments for
program year 2014, and stated that it would be making payments to insurers of approximately 12.6 percent of their
requested amounts at this time. HHS confirmed its previously stated intention to fulfill its remaining 2014 risk corridor
obligations with funds collected for program year 2015 and, if necessary, 2016 collections. On October 13, 2015, HHS
reiterated its continuing obligation to make full payment of its risk corridors liabilities and stated that HHS recognizes
that the ACA requires the Secretary to make full payments to issuers. HHS further stated that it is recording those
amounts that remain unpaid following its 12.6 percent prorated payment this winter as fiscal year 2015 obligations of
the United States Government for which full payment is required. This payment structure would be consistent with the
Consolidated and Further Continuing Appropriations Act, 2015, which is also referred to as the “2015 Budget Act" or
"Cromnibus." Additionally, HHS has stated that in the event of a shortfall between the amounts collected from issuers
and the payments to issuers, HHS will use other sources of funding for the risk corridors payments, subject to the
availability of appropriations. This use of alternative funding is consistent with general principles of federal program
budgeting and appropriations. Notwithstanding any restrictions imposed by the 2015 Budget Act, which restrictions
were repeated in identical language in the 2016 Budget Act passed in December 2015, HHS has retained the right and
ability to source risk corridors program payments from user fees under both the risk corridors program and other
programs.