IBNR (Incurred But Not Reported)

IBNR stands for incurred but not reported. It is the estimated cost of medical care that has already happened but hasn't yet been billed to or paid by the plan. A surgery on March 20 might not produce a paid claim until June; on March 31 that surgery is an IBNR liability.

For a self-funded employer, IBNR is a real number on the balance sheet, not an accounting curiosity. Claims typically take 30 to 90 days from service to payment, so at any moment a plan owes roughly two to three months of claims it hasn't seen. A plan spending $500,000 a month in claims carries an IBNR reserve of $1 million to $1.5 million. Auditors expect it to be booked, and a company that switches from fully-insured to self-funded discovers it the hard way: the first year looks cheap because claims lag, and the reserve builds quietly until the run-out bill arrives. Actuaries estimate IBNR from historical payment patterns, called completion factors; a bad estimate in either direction moves reported plan cost by hundreds of thousands of dollars.

The takeaway: if you're self-funded, know your IBNR figure and how it was calculated. It's the difference between a plan that looks healthy and one that is.