Student Health Insurance - Key Points of Reform Regulations

Daniel Stone

·         The proposed rule defined student health insurance coverage as a type of individual market health insurance coverage offered to students and their dependents under a written agreement between an institution of higher education and an issuer.

·         The proposed rule would exempt student health insurance coverage from the guaranteed availability requirements of PHS Act section 2741(e)(1) and the guaranteed renewability requirement of PHS Act 2742(b)(5).  The proposed rule also would provide that student health insurance coverage could not establish an annual dollar limit on coverage lower than $100,000 for policy years beginning prior to September 30, 2012.  The proposed rule would apply the generally applicable annual dollar limit requirements for individual health coverage for subsequent policy years.

·         The proposed rule would clarify that student administrative health fees were not cost sharing for purposes of PHS Act section 2713, which requires that certain preventive services be covered without cost-sharing.

·         The proposed definition of student health insurance coverage would not prevent consortia of universities or State boards of regents from acting on behalf of an institution of higher education in entering into a written agreement with an issuer to provide student health insurance coverage since those bodies are either a collection of universities or part of the university system.  Student associations sponsoring insurance plans are not institutions of higher education.

·         Student health insurance plans have flexibility in determining which dependents, if any, are eligible for coverage under their plan terms.  Similarly, students health insurance plans would have discretion under the proposed rule to allow temporary continuation of coverage upon events such as the loss of student status.

·         The effective date of this rule is intended to provide issuers and universities that operated with a reasonable belief that their policies were short term limited duration coverage to come into compliance with the Affordable Care Act.  While there may be instances where short term limited duration coverage is appropriately sold to students- for instance, foreign students studying for only one semester in the United States or US citiens studying abroad for one summer- the short term limited duration model does not apply to coverage that a student could have through the same health insurance issuer for one or more years during the course of his or her undergraduate education.

·         The proposed rule acknowledged that because self funded student health plans are neither health insurance coverage nor group health plans as those terms are defined in the PHS Act, HHS has no authority to regulate them, including extending Affordable Care Act policies to them.

·         The following schedule for restrictions on annual dollar limits – (1) annual limits of no less that $100,000 for policy years beginning on or after July 1, 2012 but before September 23, 2012, (2) annual limits of no less than $500,000 for policy years beginning on or after September 23, 2012, but before January 1, 2014, and (3) consistent with section 2711, no annual dollar limits for policy years beginning on or after January 1,2014.

·         Student health insurance coverage must include the preventive services specified under PHS Act section 2713 and the implementing regulations.  However, PHS Act section 2713 and the implementing regulations do not prevent student health insurance coverage from coordinating with student health centers to ensure the provision of these services.

·         The proposed rule does not prevent a student health insurance plan from designating providers at a student health center as its in network providers and allowing students to choose from among those providers for purposes of satisfying section 2719A, provided that the centers have sufficient provider capacity and range of services available to support this designation.

·         Any coverage in which an individual is newly enrolled after March 23,2010 is non-grandfathered.

·         The college or university and the issuer of the student health insurance coverage will also be subject to the temporary one-year enforcement safe harbor, and contraceptive benefits will not have to be provided in its students health insurance plan until policy years beginning on or after August 1, 2013/  Satisfaction of such terms includes sending the requisite notice to the students enrolled in the student health insurance plan and the institute of higher education maintaining on file the requisite self-certification.

·         The amendment to Part 158 provides that the expereicne for student coverage is to be reported separately from other individual market coverage.  Further, given that student health insurance coverage is provided a separate pool, apart from other individual market coverage, the amendment provides for national aggregation of student health insurance coverage.

·         This amendment to Part 158 provides that the calculation of incurred claims and quality improving activities is to be multiplied by 1.15 in 2013.

·         No special treatment is provided in MLR reporting year 2014 and beyond.

·         We maintained the calendar year MLR reporting structure for student coverage because, under Part 158, issuers currently report other individual market coverage on a calendar year basis.  In addition, issuers of student health insurance coverage will be subject to the rebate provisions in Part 158, consistent with other individual market coverage.

·         The rule includes conforming changes regarding how credibility adjustments are applied to the student health insurance market.

Cap and Trade Accounting Issues

The Climate of Accounting:  Accounting and Climate Change

                Pollution is a principal unintended consequence of industrial production.  Pollution has many harmful environmental impacts.  Chief among the long term concerns is the greenhouse effect.  The greenhouse effect arises because the heat capacity of energy producing outputs is greater than the atmospheric heat capacity, leading to global warming.  Carbon dioxide is the main greenhouse gas, but other gases with greater greenhouse potential are also serious warming risks.  Inventories of human greenhouse gas production include power generation, industrial activity like manufacturing, and commercial and residential activity like operating facilities and driving.

                Cap and trade schemes are an attempt to limit the production of carbon dioxide by providing a fixed amount of carbon credits to power generators and industrial companies in covered sectors of activity.  The cap is a limit on the amount of production; the production cap is the total amount specified by the available credits.  The credit consists of a mass of greenhouse gas emitted per calendar year.  The mass of greenhouse gases is measured in carbon dioxide equivalents.  Other greenhouse gases are adjusted to a carbon dioxide basis by comparing heat capacity and atmospheric retention.  The calendar year is called the vintage year.  A certain number of credits are issued to an emitter based on historical emissions.  Additional credits are available at auction.  The total number of credits in future vintage years is less than the total number of credits in the current year to encourage the policy goal of decreasing emissions.

There are several classes of credit transactions.  Credits can be offset by other activities that lower emissions in a reliable way.  Past credits can be accumulated to be used in future years at full value.  Future credits must be discounted if used for present purposes.  Thus, credits have interest like properties.  Credits can also be swapped, either through over the counter broker markets or on organized exchanges.

Cap and trade schemes create a variety of accounting issues:

·         What is the nature of the reporting entity?

·         Should credits be recognized on the balance sheet?

·         Should credits accrete to comprehensive income?

·         How should an entity account for vintage year swaps?

Determining which entities should report in a cap and trade scheme requires an application of the cost benefit principle.  The facility is the accepted level of reporting.  For example, a power generation plant or a cement factory would qualify as a facility.  Facilities are contiguous properties with common productive purposes.  Facilities have to meet a certain threshold to report their emissions.  Facilities are also assessed based on their downstream carbon producing activity.  For example, a car manufacturer would be assessed for the greenhouse gases of the cars it produces in addition to the greenhouse gases emitted in manufacturing the cars.

Allowances meet the definition of an asset. Emitting greenhouse gases brings future benefit to the firm.  However, excessive emissions cause an involuntary surrender of the credits, raising issues of asset control.  Both the International Accounting Standards Board and Financial Accounting Standards Board have tentatively decided to recognize the allocation or purchase of allowances as the event that produces an asset.   The boards felt that the company’s ability to control the disposition of the credits was more relevant than the requirement to comply with emissions standards in determining whether an asset existed. The Boards decided to classify allocated allowances as assets even though they lack monetary consideration because they are fungible with purchased allowances.  This decision requires the existence of a liquid market to determine fair value. 

 Future discussions will focus on classification.  One proposed scheme classifies allowances used in production as an intangible asset, allowances held for trading purposes either by the financing arm of a corporation or by independent brokers and traders as inventory, and allowances held for speculation as investments.  Allowances may either be recorded at historical cost or fair value.  This decision has a material impact on the balance sheet.  Permits granted by the government have a historical cost of zero.  Only those purchased through auction or on the open market have a historical cost equal to fair value.

The existence and nature of the liability is open to interpretation.  The lack of monetary consideration to the scheme administrator raises an issue if a liability exists or whether the emissions are a component of equity.  Both the IASB and FASB have decided that the credits are a liability.  The open issue is the timing of the liability. The receipt of the credits could constitute a current obligation to limit emissions.  The accounting treatment would be similar to accounting for grants to farmers not to plant a certain crop.  Under IAS 41 Agriculture, the amount of the grant is treated as a “refundable advance” until the terms of the grant expires.  Thus, receipt of the emission allowance would credit a liability account “Refundable Emission Allowance Advance.”  Alternatively, receipt of the allowance could create an obligation based on future consumption of the credits.  Under this view, comprehensive income is credited.  The FASB has recently decided to recognize receipt of credits as a liability.

Fixed precision measurements

Monetary unit assumption

Transactions change the accounting identity

Transactions allow the firm to interact with outsiders.  Transactions are how business happens.  They are economic events.  The firm produces or consumes resources.  Or the firm changes the nature of its economic relationship with its creditors and investors.

The accounting identity needs to hold before and after the transaction. A transaction has a dual effect on the accounting identity because the new resources need to be claimed by creditors or investors.  If the firm pays its obligations, fewer resources are available to creditors.  If the firm is profitable, the owners benefit. 

Transactions affect the firm through accounts.  Accounts are classified as assets, liabilities, and equity.  Account balances are aggregates of the firm's transactions.  They summarize the economic activity of the firm.

Assets = Liabilities + Equity

This equation is the identity of financial accounting.  At any given instant, it's true.  It's just a snapshot.

Financial accounting requires the economic entity assumption. Our assets are our resources.  This stuff makes up the firm -  it's not mine; it's not yours; it's not even ours.

It's theirs'.  We meet the cast of characters to the right of the equals sign.  They are outsiders of the firm, but they claim all the firm's resources.

The liabilities belong to the creditors.  Creditors are conservative.  Their obligations are determined with certainty.  It's in the contract.  They don't like the firm taking chances when that may hurt the firm's chances of paying them.  Creditors can also be mean.  They can force the firm to liquidate if the liabilities exceed the assets and the firm can't pay their obligations when they come due.  Their claims come first.

The equity is what's left over for the owners.  The owners see opportunity.  They share in the growth of the firm and have an indefinite claim to resources as long as they continue to be owners.  Why own? The firm pays its owners lease payments called dividends for providing them capital.  Investors can be flighty, though.  Investors expect the equity of the firm to grow.  A rational investor who does not expect growth will sell his shares.