The Supreme Court addressed the timing of the deduction of medical payments of an accrual basis noninsurer that self-insured certain medical care coverage in United States v. General Dynamics Corp.
General Dynamics paid medical claims out of its own funds but employed private carriers to administer the plan, instead of continuing its purchase of insurance from others. It set up a reserve to cover its liability for medical care received by employees.
General Dynamics argued that it could deduct certain amounts set aside as reserves as accrued expenses. The Court of Claims held that the amount set side satisfied the all events test because the medical services were rendered and the amount of liability could be established with reasonable accuracy.
The Supreme Court held, however, that General Dynamics was liable to pay for covered medical services only if properly documented claims were filed.
The Court concluded that although General Dynamics could make a reasonable estimate of the amount of liability for claims that would be filed for medical care received during the applicable period, estimated claims were not intended to fall within the all events test. Otherwise, Congress would not have needed to provide an explicit provision that insurance companies could deduct reserves for incurred but unreported claims.
