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My company just started medical/dental self-funded on 6/1/15: how do I determine the monthly expense (and estimate IBNR)?

I could take the estimated maximum expected claim amount (from the medical company) divided by 12 and take out employees share of premiums. Is there a better way?


Topic Expert
Scott MacDonald
Title: President/Owner
Company: AlphaMac Resources, Inc.
(President/Owner, AlphaMac Resources, Inc.) |

That is probably as good an answer as there is. I would imagine you probably also have a stop-loss premium to amortize as well.

At the end of the year, you will need to also record an "incurred but not billed" estimate. The company that is helping with the processing of claims should be able to help with that. Or you might need to get an actuary involved.

Dina Lucas
Title: Controller
Company: Aurora Technologies, Inc.
(Controller, Aurora Technologies, Inc.) |

I set up a separate bank account for health insurance and post all employee and company contributions to that account. Then we expense the monthly stop gap premium and any claims paid during the month. We have found that claims are very slow coming in from providers so there is not really a way to accurately accrue unpaid claims at month/year end so we don't even attempt to do it.

Tim Schultz
Title: Director of Finance
Company: Pheasants Forever
(Director of Finance, Pheasants Forever) |

We use an approach similar to Dina's except that we accrue employer's share of the estimated premium equivalent (projected claims plus admin and stop loss) and credit the liability. As amounts are paid for claims, stop loss and admin the liability account is debited. The net balance in the liability account becomes your unpaid loss reserve. If this is the first year it will take some months to get enough claim activity to allow for a creditable adjustment to the unpaid claim reserve. Your administrator should provide you claims information on an incurred and paid date basis. This will allow you to track the timing/rate of claims incurred compared to paid to arrive at a completion factor. Once you have enough experience to develop a completion factor for prior months you can use this to develop your IBNR. For year-end or quarter-end your administrator should be able to provide you with an estimate of your IBNR that you can compare to your own estimate.


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