Managers of the new federal risk corridors program have figured out what they’ll do if they run out of cash: make a partial payment during the year, and then use revenue from the next year to pay the balance.
Although the “payment stretching” solution could fix the cash-flow problem at the risk corridors program, it could create a new cash-flow accounting headache for the carriers expecting the money.
Officials at the Center for Consumer Information & Insurance Oversight talk about risk corridors program payment stretching in a new fact sheet.
The risk corridors program is supposed to guard against big, Patient Protection and Affordable Care Act-related swings in claim risk, by using cash from highly profitable carriers to ease the pain of poorly performing carriers.
When a carrier is calculating its PPACA medical loss ratio, it will have to count the full amount of incoming risk corridors program money in its revenue for the current reporting year, officials say.
PPACA now requires carriers in the individual and small-group markets to have a medical loss ratio of at least 80 percent. Carriers that miss the target might have to pay rebates.
Over a multi-year period, once all of the accounting was done, a carrier affected by risk corridors program payment stretching should end up in the same position it would be in if there were no payment stretching, officials say.
But, in some years, while the payment stretching was under way, the carrier could end up with MLR rebate obligations that were different from what it had expected, officials acknowledge.
“We intend to provide more guidance on this,” officials say.