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KPMG gives Health Service System trust a clean audit; reserve for claims jumps after plan funding change
Summary
KPMG issued an unmodified opinion on the 2013 financial statements and internal controls for the Health Service System trust; auditors highlighted a 173% increase in the reserve for claims (from about $9M to $26M) linked to Blue Shield’s midyear conversion to a flex‑funded plan and reported no deficiencies.
KPMG senior manager Jamie Caban told the Health Service System Board the trust’s 2013 fiscal‑year audit resulted in a clean, unmodified opinion on both the financial statements and internal‑control/compliance testing. "We issued a clean and unmodified opinion for the fiscal year 02/2013," Jamie Caban said.
Caban identified three significant financial changes during the year. The reserve for claims increased roughly 173 percent — from about $9 million to $26 million — largely because Blue Shield converted from a fully insured plan to a flex‑funded plan midyear and the new arrangement added an estimated $18.1 million for incurred but not reported claims. Caban said premiums payable decreased by about 36 percent (from approximately $26 million to $17 million) and the city health‑plan health benefits line on the income statement fell from about $62 million to $45 million due to enrollment movement.
Pamela Levin, the system’s chief financial officer, walked the board through the trust’s ending balances and reserve composition. Levin said the trust ended the fiscal year with $77.3 million in net assets and noted $68.6 million of obligations and reserves, leaving what she described as roughly $8.7 million that is "quasi available" only if obligations do not materialize. Levin said staff will revisit reserve levels and policy in February 2014 and that the Controller’s Office will publish the city’s comprehensive annual financial report around the end of the month.
KPMG also reported that audit testing identified no proposed or past audit adjustments and no reportable deficiencies or instances of noncompliance for the trust. The auditors confirmed that the trust’s actuary (Aon Hewitt) and KPMG’s independent actuary produced comparable estimates of the incurred but not reported reserves.
Board members thanked staff and auditors for completing a timely audit despite the complexities of plan‑year changes and vendor transitions. Staff will return with any follow‑up items after the Controller’s CAFR and the February reserve review.
