The following table identifies the changes made to this Subtopic.
This Subtopic provides guidance on accounting for other expenses for health care entities within the scope of this Topic.
Many prepaid health care providers incur costs that vary with, and are primarily related to, the marketing of subscriber contracts and member enrollment. These costs, sometimes referred to as acquisition costs, consist mainly of commissions paid to agents or brokers and incentive compensation based on new enrollments. Commissions and incentive compensation may be paid when the contracts are written, at later dates, or over the terms of the contracts as premiums are received. Some providers incur additional costs directly related to the acquisition of specific contracts, such as the costs of specialized brochures, marketing, and advertising. Providers also incur costs that are related to the acquisition of new members but that do not relate to specific contracts and are not considered acquisition costs. These costs include salaries of the marketing director and staff, general marketing brochures, and general advertising and promotion expenses.
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section
954-10-15.
A health care entity with a retrospectively rated insurance policy whose ultimate premium is based primarily on the health care entity's loss experience shall account for the minimum premium as an expense over the period of coverage under the policy. Insurance recoveries from a retrospectively rated insurance policy whose ultimate premium is based primarily on the health care entity's loss experience shall not be recognized until the estimated losses exceed the stipulated maximum premium.
A health care entity insured under a retrospectively rated policy whose ultimate premium is based primarily on the experience of a group of health care entities shall accrue additional premiums or refunds on the basis of the group's experience to date, which includes a provision for the ultimate cost of asserted and unasserted claims before the financial statement date, whether reported or unreported.
An accrual for malpractice losses shall be based on estimated ultimate losses and costs associated with settling claims. See paragraphs
954-450-25-2 through 2A for factors to consider when determining the amount of the accrual.
The Claims Made Contract Subsections of Subtopic
720-20 apply if a health care entity purchases a claims-made insurance policy.
As discussed in paragraph 720-20-25-14, insured entities (except as discussed in Section 944-20-15), including those that use a claims-made approach for insuring certain risks, recognize a liability for the probable losses from incurred but not reported claims and incidents if the loss is both probable and reasonably estimable. Consequently, a health care entity that is insured under a claims-made insurance policy recognizes the estimated cost of claims and incidents not reported to the insurance carrier, in accordance with Subtopic 954-450. An entity that participates in a common trust fund and forfeits its rights to any excess funding shall expense its contributions and account for its participation in the trust fund based on the type of coverage obtained (for example, occurrence basis, claims-made, or retrospectively rated).
A health care entity insured under a retrospectively rated policy whose ultimate premium is based primarily on the experience of a group of health care entities amortizes the initial premium to expense on a pro rata basis over the policy term.