The care happened; the bill has not arrived. This lesson explains the lag between service and payment, and why it complicates every financial statement.
Here is a fact that trips up everyone new to risk-based finance: at the moment a month or a quarter ends, an organization does not know what that period cost. The care happened, but many of the bills have not arrived yet. Understanding this lag is the gateway to reserves and IBNR.
The pipeline from care to payment
A single episode of care moves through several steps, each taking time:
- The service is delivered.
- The provider submits a claim, which can take days to weeks.
- The payer adjudicates it, checking eligibility and coverage.
- The claim is paid.
Only at step four does the cost appear in paid-claims data. For a service delivered on the last day of March, that could be May or June before it lands.
Runout
The tail of claims still arriving for a closed period is called runout. If you look at March’s paid claims on April 1, you are seeing a fraction of what March will ultimately cost. Wait three months and the picture fills in; wait a year and it is nearly complete.
| Time after month closes | Share of that month’s claims typically paid |
|---|---|
| Immediately | A small fraction |
| A few months | Most |
| A year or more | Nearly all |
(The exact pace varies by service type; hospital claims complete differently from pharmacy.)
Worth remembering: paid claims always understate the true cost of a recent period. An organization that reads last month’s paid claims as last month’s cost will feel richer than it is, and may make decisions it regrets when the runout arrives.
Why this matters financially
Every financial statement, every reconciliation, every “are we over or under budget” question runs into the lag. You cannot wait a year to close the books, so you have to estimate the claims not yet paid. That estimate is IBNR, the subject of the next lesson, and it is one of the most important numbers a risk-bearing organization produces.
Key takeaways
- Care is delivered, then billed, adjudicated, and paid, so costs are known only with a delay.
- Runout is the tail of claims still arriving for a closed period; paid claims understate recent cost.
- Because you cannot wait for full runout, you must estimate unpaid claims, which is what IBNR does.
Check your understanding
Why can a risk-bearing organization not know its true costs at the moment a period ends?
Care is delivered, then billed, then adjudicated, then paid. That pipeline means claims for a given month keep arriving long after the month closes, a delay called the claims lag or runout.