2006 Comprehensive Annual Financial Report

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CITY OF SOUTH BEND NOTES TO FINANCIAL STATEMENTS (Continued) Changes in the balance of claim liabilities during the past two years are as follows: 2005 Unpaid claims, beginning of fiscal year Incurred claims and changes in estimates Claim payments Unpaid claims, end of fiscal year Group Health Insurance 2006 756,221 $ 388,202 1,955,208 1,849,900 2,323,227 1,830,506 $ 388,202 $ 407,596 The primary government has chosen to establish a risk financing fund for risks associated with medi- cal benefits of employees and their covered dependents. The risk financing fund is accounted for in the Self-Funded Employee Benefits Fund, an internal service fund, where assets are set aside for benefit costs. An excess policy through commercial insurance covers individual claims in excess of $125,000 per year. Settled claims resulting from this risk did not exceed commercial insurance cover- age in the past three years. A premium is charged to each fund bases on the number of employees and estimated costs exceeding the employees' contributions. Provisions are also made for unex- pected and unusual claims. Claim expenditures and liabilities of the fund are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. These losses include an estimate of claims that have been incurred but not reported (IBNRs). Claim liabilities are calculated considering the effects of inflation, recent claim settlement trends including frequency and amounts of pay outs and other economic and social factors. Changes in the balance of claim liabilities during the past two years are as follows: 2005 2006 Unpaid claims, beginning of fiscal year $ 892,815 $ 814,321 Incurred claims and changes in estimates 10,107,876 13,394,129 Claim payments 10,186,370 12,741,654 Unpaid claims, end of fiscal year $ 814,321 $ 1,466,796 During 2005, the City's former employee medical benefits' administrator, Healthcare Resources Group (HRG), failed to pay $1,111,899 in health care claims for City employees. The City had paid HRG for the claims. HRG was purchased by another business that has filed bankruptcy. The City has been notified by the bankruptcy court that the court has received approximately 70% of the total claims and the City has recognized a receivable for this percent of the total claims. The remaining claims, $333,570 have been recognized as a loss by the City in prior years. In the future, the City may receive more payments from the bankruptcy court. The City may also receive restitution from a pending criminal case. 69