Many employers elect to take a more proactive approach in managing their group health care costs through a self-funded or partially self-funded financing method. One of the key differences between a fully insured plan and a self-funded plan is the basis for financially accounting for each plan year. When an employer purchases a plan from an insurance carrier, the policy typically includes all expenses that are incurred during the plan year. However, when an employer sponsors a self-funded plan, expenses are booked in the plan year in which they are paid. This means that at any given point in time the employer has a liability for claims “incurred but not yet reported” (IBNR). This ongoing claims liability should be projected on an annual basis as an IBNR reserve.
There are a number of reasons why a professionally prepared IBNR reserve calculation is important. First, the employer should know the magnitude of their unpaid claims liability for financial reporting and planning purposes. Second, this data enables the employer to better compare reinsurance policies and alternate funding arrangements at each renewal. Finally, it is important for employers to track their total benefit costs and the IBNR should be incorporated into this evaluation.
Medcom Benefit Solutions’ professional actuarial team works closely with employers in the development and certification of the IBNR reserve on either a quarterly or annual basis.