health reserves (claim and contract reserves, IBNR)

On any given day a health insurer already owes money it has not yet paid: claims for care that happened but whose bills are still in the post, ongoing disability payments that will continue for years, and future obligations on policies it has already collected premium for. A reserve is the amount the insurer sets aside today to meet those promises. It is an accounting liability and a planned use of assets — not a spare pile of cash sitting idle.

Health reserves come in a few flavors. Claim reserves cover claims already incurred — including IBNR (incurred but not reported), an estimate of care that has happened but not yet been billed or recorded; on the day the books close, some January illnesses simply have not reached the insurer yet, and IBNR fills that gap. For ongoing disability or LTC claims, a claim reserve also holds the present value of future payments still expected on open claims (using a continuance table and interest). Contract reserves (sometimes 'active life reserves') apply to level-premium products like LTC or guaranteed-renewable health, where early premiums are deliberately more than early claims so they can fund the costlier later years — the excess is held as a reserve.

Estimating these is core health-actuarial work and full of judgment. IBNR is typically estimated from claim-lag patterns (how long bills usually take to arrive) using development triangles much like in general insurance. Disability claim reserves depend on continuance assumptions that can be wrong. The honest caveats: a reserve is an estimate of a liability, not money locked in a vault; it is backed by the insurer's invested assets, which must be managed to be there when claims fall due. Set reserves too low and the insurer looks healthier than it is; too high and capital is tied up needlessly.