2005 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: 2004 2005 Unpaid claims, beginning of fiscal year $ 414,884 $ 756,221 Incurred claims and changes in estimates 1,959,330 1,955,208 Claim payments 1,617,993 2,323,227 Unpaid claims, end of fiscal year $ 756,221 $ 388,202 Group Health Insurance The primary government has chosen to establish a risk financing fund for risks associated with medical 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 coverage in the past three years. A premium is charged to each fund bases on the number of em- ployees and estimated costs exceeding the employees' contributions. Provisions are also made for unexpected and unusual claims. Claim expenditures and liabilities of the fund are reported when it is probable thata 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: 2004 2005 Unpaid claims, beginning of fiscal year $ 778,500 $ 892,815 Incurred claims and changes in estimates 9,093,235 10,107,876 Claim payments 8,978,920 10,186,370 Unpaid claims, end of fiscal year $ 892,815 $ 814,321 During 2005, the 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 the future, the City may receive more pay- ments from the bankruptcy court. The City may also receive restitution from a pending criminal case. 52