Changes to Presentation of Insurance Claims and Related Insurance Recoveries

(ASU) No. 2010-24

In August 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2010-24, “Presentation of Insurance Claims and Related Insurance Recoveries”. 

Healthcare entities have been lacking consistency when accounting for medical malpractice and other similar claims and the related anticipated insurance recoveries.  Most healthcare entities have in the past netted anticipated insurance recoveries against related accrued liabilities.  There were still a small number of entities presenting these items on a gross basis.  FASB concluded that the accounting requirements for claims and recoveries of healthcare entities should be aligned with the accounting requirements used by entities in other industries.  It was concluded that gross presentation better reflects in the financial statements that the healthcare entity remains obligated for the claim and that the entity is exposed to credit risk from the insurer.

This update requires that the liability for a claim shall not be presented net of anticipated insurance recoveries.  An entity that is indemnified for these liabilities shall recognize an insurance receivable at the same time it recognizes the liability.  This receivable shall be measured on the same basis as the liability and be subject to the need for a valuation allowance for uncollectable amounts. 

The entity shall apply the contents of this update by recording a cumulative-effect adjustment to opening retained earnings (or unrestricted net assets) as of the beginning of the period of adoption for an amount representing the difference between any liabilities and insurance receivables recorded. 

This update will affect all healthcare entities currently presenting these liabilities as a netted amount.  This update will be effective for fiscal years, and interim periods within those years, beginning after December 15, 2010.  Retrospective or early application of this update will be allowed.

Contact your Feeley and Driscoll, P.C. advisor to discuss how this standard affects your organization. Email us or call us at 1 (888) 875-9770.

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