Time to Heed FASB’s Updated Charity Care and Insurance Recovery Rules
Health care organizations should take note of two accounting standards changes effective for fiscal years beginning after December 15, 2010: charity care disclosures and financial treatment of insurance claims and recovery.
Additional charity care information required
The Financial Accounting Standards Board’s (FASB) update
2010-23, “Measuring Charity Care for Disclosure,” calls for charity care disclosures to include:
- Your organization’s charity care policy
- Direct and indirect costs of providing charity care
- Methods used to estimate costs
- Any funds offsetting charity care
Although not specifically defined, your organization may refer to the American Hospital Association (AHA) guidelines and American Institute of CPAs’ (AICPA) Audit and Accounting Guide for Health Care Entities to estimate direct and indirect costs. If you track charity care as part of a community benefit footnote, you would do well to ensure that the amount disclosed in the financial statements is in agreement with the amount calculated and disclosed in Schedule H of the Form 990.
Insurance claims and recovery rule clarified
FASB's update
2010-24, “Presentation of Insurance Claims and Related Insurance Recoveries,” provides clearer language on its standard for claims and recovery accounting. It states that health care providers should not net insurance recoveries against a related claim liability and stipulates that liability should be determined without consideration of potential insurance recoveries.
Additionally, organizations must recognize receivables at the same time as the liability and offset them by a valuation allowance (if applicable). In the instance a retroactively rated insurance policy is involved, account for the loss as the minimum premium expensed over the coverage period. However, if the policy’s premium is based primarily on loss experience, you should not recognize the expense until the estimated losses exceed the maximum premium.
“We’re advising clients to apply these updates now for the most accurate reporting and financial statement presentation,” says Amanda Tinney, a LarsonAllen health care manager. “The provisions are retrospective, so it’s best to address them now.”
How we can help
Accounting standards are complex. LarsonAllen’s health care professionals can assist your finance and management team in interpreting and applying these rules to your organization’s financial reporting process.
Amanda Tinney, Health Care, Manager
atinney@larsonallen.com or 314-925-4389
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