Self-Insured Counties: To Fund, or Not to Fund (Liabilities, that is…)
A topic regularly debated is whether or not New York State Counties that self-insure their Workers’ Compensation benefits should fund their liabilities. We’re hearing a lot of uninformed opinions being shared with Counties by those who may not recognize the financial scrutiny these Counties are facing.
A self-insured County in New York needs to evaluate whether or not they carry a liability for both Incurred But Not Reported claims (IBNR) and/or Case Reserves. If the answer is one and not the other then the first step is to be sure both liabilities are calculated and accounted for on the plans financial statements. Also, with regard to the impact claims have on liabilities, it’s necessary that the Third Party Administrator (TPA) is reserving the claim files to the actual life expectancy of the claim (Full Reserving). If this isn’t the case then the Case Reserve Liability documented on the financials will be inaccurate and any “Fund Balance” a fictitious and misleading number.
Some will argue that funding the liabilities at a less than full amount, say 30%, is acceptable and reserves can be adjusted as a claim matures. While this may be an acceptable practice for privately owned self-insured entities, municipal financial accountability makes this a dangerous practice for County plans. In New York partial funding has led to many grossly underfunded self-insured Workers’ Compensation plans. When financial statements are prepared for a County that doesn’t carry their complete liabilities (IBNR and full Case Reserves) the Fund Balance is inaccurate resulting in an underfunded plan.
However, what County officials really want to know is are there any requirements to fund your liabilities?? The NYS Department of Financial Services does not require a self-insured County to fund their liabilities. In our humble opinion, though, that doesn’t change the fact that it might be considered fiscally irresponsible to NOT do so. State regulating authorities continue to review the accounting methods of the remaining self-insured Trusts across the state as well as public self-insured Trusts. In our experience practicing fiscal management that provides the most accurate picture of a Plan’s liabilities will lead to less scrutiny in the long run.