Back to Financial and Actuarial Basics
Module 2
Claims, Reserves, and IBNR
The care happened but the bills have not arrived. How the claims lag, IBNR, and reserves determine what a period actually cost.
3 lessons About 13 min
By the end of this module, you will be able to:
- Explain why claims for a closed period keep arriving for months afterward
- Estimate incurred cost from paid claims using a completion factor
- Describe why under-reserving flatters near-term results and endangers the organization later
- The Claims Lag The care happened; the bill has not arrived. This lesson explains the lag between service and payment, and why it complicates every financial statement. About 4 min
- IBNR: Paying for Care You Cannot See Yet Incurred but not reported claims are the biggest number you cannot look up. This lesson explains what IBNR is and how it is estimated. About 5 min
- Reserves and the Balance Sheet Bearing risk means holding money against claims you have not paid yet. This lesson covers claims reserves and why they sit at the center of solvency. About 4 min
Module quiz
Answer all questions to see your score.
1. Why do paid claims understate the true cost of a recent period?
Care is delivered, then billed, adjudicated, and paid, so a recent month's paid claims capture only part of what it will ultimately cost.
2. Incurred claims equal:
IBNR estimates the cost of care delivered but not yet reported; adding it to paid claims gives the true incurred cost of a period.
3. What does under-reserving do to a risk-bearing organization?
The claims are coming regardless. Thin reserves make results look strong until the bills arrive all at once.