Employer self-funded healthcare plans need to have an accurate estimate of the cost of healthcare claims that have been incurred but not yet reported on their financial statement. This provision for claim payments is called “IBNR reserves.”
There are a few different ways to obtain IBNR reserves for your groups.
The right reserve estimation process for future claim payments depends on your company’s resources and your client’s needs.
Using an actuarial consulting firm ensures regulatory compliance, since the firm will attest to the result and validate it with a licensed actuary’s credential. Some plans require this. It can cost thousands of dollars per group depending on the payment structure and volume of estimates of claims needed, and generally has a long turnaround time. While we can’t speak to the reserving process followed by each actuarial team or the accuracy of reserve estimates generated, we can affirm that this approach usually results in a methodical and thorough estimation of IBNR reserves for healthcare claims that will guarantee the plan is compliant with regulations.
Asking the plan administrator for an estimate is fast and free of charge. However, there is no way to see how the financial report was generated. If audited, firms will not be able to defend the estimation process used. This can also result in an inaccurate estimate of funds needed. If the estimate of claim costs is too high, this restricts cash from being used for other business needs unnecessarily, which can hinder the business’s growth. If the IBNR reserve is too low, there may not be sufficient funds available to pay for the claims once they come in.
Manually calculating claims reserves estimates requires less upfront cost and provides more control over how the estimate is produced. However, it can also stress internal resources by requiring staff members to perform the calculations. It may not be as accurate as a legitimate actuarial estimate and can run the risk of human error since the estimation process is being performed manually. This reserving process is also less suitable for small groups, which have more volatile claims patterns that can create a higher risk of under or overestimating the outstanding claims reserves.
This option allows for automated reserve estimates. The cost is generally lower than hiring an actuarial firm, especially for multiple groups. Depending on the software used, the reserving process is suitable for any size group and can reduce internal resources needed to produce estimates, although it still requires staff to generate the reserves through the software. However, without a licensed actuary’s signoff, the result may not be compliant with regulations for some plans, and the risk of human error is not eliminated, simply reduced.
Our software solution, ClarosReserve, offers a reliable, adjustable, and defensible method for automating claim reserves for any size group and includes all the necessary documentation for auditor approval. To learn more about how you can automate your reserving process while generating credible results, schedule a demo with our team:
