Health Service Board approves $38.15M IBNR and $28.55M contingency reserves
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Summary
The San Francisco Health Service Board approved actuarial recommendations for incurred-but-not-reported (IBNR) and contingency reserves as of June 30, 2023, citing higher pharmacy and specialty drug costs and slower carrier claim processing.
The San Francisco Health Service Board voted unanimously to approve actuarial recommendations setting the June 30, 2023 incurred-but-not-reported (IBNR) reserve at approximately $38.15 million and contingency reserves at approximately $28.55 million.
The recommendation came from Mike Clark, an actuary with Aon, who told the board the IBNR and contingency increases were driven by a mix of higher claims — particularly in Blue Shield access plans — pharmacy and specialty drug cost escalation, and slower claim-processing speeds at some carriers. Clark said population changes (headcount increases) explained large increases for some flex-funded plans.
The board moved and seconded the motion to adopt the recommended reserve amounts and recorded a roll-call vote in which President Scott, Vice President Howe, Commissioners Karen Breslin, Christopher Canning, Follansby, Zavansky and Supervisor Dorsey all voted “Aye.” President Scott declared the motion carried unanimously.
Why it matters: IBNR and contingency reserves are actuarial estimates that protect plan solvency by covering claims incurred but not yet reported and by providing a buffer for unexpected cost volatility. The board was told the figures will feed into later stabilization-reserve calculations for the 12/31/2023 measurement.
What the actuary recommended: Clark presented the full reserve tables and noted that Aon measures contingency under multiple confidence levels; SFHSS uses a conservative 99th-percentile approach for contingency. He said alternatives (95th and 97th percentiles) would produce substantially lower contingency amounts.
Next steps: The board will consider stabilization-reserve calculations in early 2024 as part of the rates-and-benefits cycle. Staff and the actuary said they will continue to monitor claims trends, pharmacy costs and carrier processing performance.
Source: presentation and motion by Mike Clark (Aon) to the San Francisco Health Service Board, Jan. 11, 2024.
