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Voters pass Medicaid expansion in 3 Republican states; Kansas may follow


IFRS 9 Impairment How It Impacts Your Corporation And How We Can Help

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Voters pass Medicaid expansion in 3 Republican states; Kansas may follow

SNL ImageSupporters of Nebraska's ballot initiative say Medicaid expansion could extend coverage to 90,000 people by 2020.
Source: AP Images
SNL Image

Voters in three Republican-controlled states passed Medicaid expansion ballot measures Nov. 6, potentially increasing coverage to an estimated 300,000 people and bringing the total number of expansion states to 36.

Ballot initiatives in Idaho, Nebraska and Utah approved by voters will increase Medicaid eligibility up to 138% of the federal poverty level for individuals in those states. Montana voters, meanwhile, appear poised to vote down an initiative to extend Medicaid expansion, which could see Medicaid expansion sunset in the state in 2019.

Kate Wolfe, communication director for Insure the Goodlife, the grassroots organization that has led the Medicaid expansion effort in Nebraska, said people have been fighting for Medicaid expansion for six years in the state. When the measure officially passed, "there was excitement ... and, I would say, probably some relief."

Considering that all three of the initiatives that passed are in states with Republican-controlled state legislatures, proponents of expansion expect a challenge to ultimately achieving implementation of expansion. Maine was the first state to pass expansion via ballot initiative in 2017, and the program has yet to take effect.

Wolfe said her state's initiative requires the Nebraska Department of Health and Human Services to submit an application for expansion by April 1, 2019, but supporters predict the legislature and newly re-elected Republican Gov. Pete Ricketts could slow the process.

"When full implementation happens, that can be where it could get sticky," Wolfe said.

Medicaid expansion could expire in Montana

Montana, which voted on whether to continue Medicaid expansion that was passed in 2015, is the only state that did not see its Medicaid expansion initiative pass. Medicaid expansion in Montana increased coverage to 100,000 people, or about 10% of the state's population.

While the results have not officially been called by the Associated Press, about 54% of voters have opposed the ballot initiative with about 85% of votes tallied, according to data from the AP.

Montana's ballot initiative was not for a direct expansion of Medicaid. It would have increased the state's tobacco tax to fund the continuation of Medicaid expansion. However, the legislation was temporary and expansion will sunset June 30, 2019, if legislation to support it is not passed.

Of the four initiatives, Montana's saw some of the strongest organized opposition before election night.

Jonathan Schleifer, executive director for The Fairness Project, a political organization that has provided financial and analytical support to expansion efforts in each state, told S&P Global Market Intelligence in an interview before the election that big tobacco companies contributed $17 million to oppose the measure.

During a Nov. 7 call, Schleifer said the organization is assessing which states to work with next on Medicaid ballot initiatives but did not provide any specific details. All four initiatives bypassed the traditional route through the state legislature and made it on the ballot through petitions. Aside from Montana, only six states that can use this strategy remain: Florida, Oklahoma, Mississippi, Missouri, South Dakota and Wyoming.

Kelly wins in Kansas, Gillum loses in Florida

The AP reported Nov. 6 that Democrat Laura Kelly defeated Republican candidate Kris Kobach in the governor's race in Kansas, opening the door for another Republican-leaning state to expand Medicaid.

In 2017, Kansas' state legislature passed a Medicaid expansion bill that would have increased coverage to about 150,000 people. However, it was vetoed by former Republican Gov. Sam Brownback, who left his position in January to become an ambassador.

Kelly campaigned on supporting Medicaid expansion and has said she will sign the legislation if expansion is passed by the state legislature.

Florida and Georgia were both seen as Republican-leaning, Southern states that could expand Medicaid, considering both Democratic candidates used Medicaid expansion as a key issue throughout their campaigns. But Florida Democratic candidate Andrew Gillum lost to Republican Ron DeSantis, and Georgia's Democratic candidate Stacey Abrams was trailing Republican Brian Kemp by 1.8% on Nov. 7, according to the AP.

Wisconsin, which is the latest state to receive approval for Medicaid work requirements, could also be a key state for future Medicaid expansion. Democrat Tony Evers defeated Republican Gov. Scott Walker, the AP reported Nov. 7. Walker, who was seeking a third term, has been a critic of expanding the state-run healthcare program, while Medicaid expansion was part of Evers' platform.

Marijuana and the midterms

Four states had ballot initiatives to legalize either recreational or medical use of marijuana. Voters in Michigan passed legislation for recreational use, while voters in North Dakota voted against it, according to results from the AP.

The AP reported that voters in Missouri passed a measure that will allow the use of medical marijuana with a 4% tax. The measure was one of three on the ballot in Missouri, all of which had different tax provisions attached to them. The proposition that passed specifically states that the 4% tax will go to healthcare services for veterans.

Efforts to legalize medical marijuana in Utah are projected to succeed, according to the AP, with 53% supporting the measure with 76% of votes finalized.

Credit Analysis
IFRS 9 Impairment How It Impacts Your Corporation And How We Can Help

IFRS 9 is a reporting standard for financial instruments that replaces IAS39 (the previous incurred loss standard) with the introduction of provisions for expected credit losses (ECLs) on all financial assets, such as those held to collect contractual cash flows, or held with the possibility of being sold.

The date for adoption was January 1, 2018 and is mandatory for public non-financial corporations (and financial institutions) across a number of jurisdictions outside the United States, including many European countries.

The two key changes introduced by the IFRS 9 accounting standard are:

  • Calculation and provisions must be performed on all affected financial assets, not just the impaired ones, as per the standard it replaces
  • New expected credit loss calculations

Additional challenges will be presented when making assessments for low default asset classes, and companies may find it difficult to access models and sufficient data history.

Impact for non-financial corporations

Non-financial corporations will have some material exposure to many of the financial assets that are defined under IFRS 9. These include investment portfolios, intercompany loans, lease receivables, contract assets, and trade receivables, as illustrated below and further explained in our webinar on IFRS 9 for non-financial corporates.

This, together with the need to assess losses on performing and non-performing assets, might have a material impact on the profit and loss (P&L) of such companies.

ECL calculations under IFRS 9

The IFRS 9 accounting standard introduces new expected credit loss (ECL) calculations that require more data and new models. The key requirements are:

  • Significant increase in credit risk (SICR): Expected loss needs to be assessed at each reporting period to identify a SICR since initial recognition
  • Explicit macro-economic forecasts need to be considered using factors such as the relevant GDP growth, unemployment rate, and stock market index growth figures
  • Credit risk metrics such as probability of default (PD), credit rating, credit score, and loss given default (LGD) need to be adjusted to point in time (PiT), versus through the cycle (TTC)
  • Calculations need to be extended over the lifetime of the assets for underperforming exposures, or in standardized calculations

General versus simplified approach

When performing ECL calculations for trade receivables, the company can choose to take a general or simplified approach (the company is presented with a choice between the two depending on the type of exposure).

  • The general approach uses the 12-month ECL calculation for performing assets (Stage 1 assets) and lifetime calculation for the assets whose creditworthiness has deteriorated since recognition (Stage 2 assets)
  • The simplified approach uses the lifetime ECL calculation for all performing and non-performing assets

The simplified approach can have a bigger impact on P&L expense, as all losses are calculated over the lifetime of the asset, while the general approach can have more impact on P&L volatility, as assets might move between stages incurring 12-month and lifetime calculations.

How S&P Global Market Intelligence can help

A best practice approach used by many financial institutions, which non-financial corporations can also use to comply with the new provision, is to use the existing TTC metrics and convert them into PiT metrics to reflect the current credit cycle, as well as include the required future macroeconomic considerations.

S&P Global Market Intelligence has developed models and tools to help your business undertake the relevant ECL calculations. These models can also be used to assess the creditworthiness of your counterparties and recovery of your exposure in the context of your core business process such as customer credit, supply chain risk, vendor management, and selection and transfer pricing.

The calculation method involves four steps:

  1. We calculate the TTC metric, i.e. the S&P Global Market Intelligence Fundamental PD, CreditModel™ score, for the concerned entity.
  2. We apply our macro-economic model, which weights user defined macro-economic scenarios to produce weighted average forecasted PDs.
  3. We apply a credit cycle adjustment, which converts the TTC risk metric into a PiT PD, leveraging the difference between observed default rates from S&P Global Ratings’ rated universe over last year versus over the past 30+ years.
  4. In addition, as a best practice, we also offer the option to incorporate market-based forward looking information. This is done by further adjusting the PD with the analysis of PD Market Signals country and industry benchmark trends over the past three months versus the past year.

In addition to this quantitative approach available on the Credit Analytics platform, we also offer scorecards that cover low default asset classes for PD, LGD, and point in time adjustments.

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