Community Health Systems 2015 Annual Report Download - page 102

based upon insurance pricing and other factors and may continue that practice in the future. Excess insurance for
all hospitals has been purchased through commercial insurance companies and generally covers us for liabilities
in excess of the self-insured retentions. The excess coverage consists of multiple layers of insurance, the sum of
which totals up to $95 million per occurrence and in the aggregate for claims reported on or after June 1, 2003,
up to $145 million per occurrence and in the aggregate for claims reported on or after January 1, 2008, up to
$195 million per occurrence and in the aggregate for claims reported on or after June 1, 2010, and up to $220
million per occurrence and in the aggregate for claims reported on or after June 1, 2015. In addition, for
integrated occurrence malpractice claims, there is an additional $50 million of excess coverage for claims
reported on or after June 1, 2014 and an additional $75 million of excess coverage for claims reported on or after
June 1, 2015. For certain policy years prior to June 1, 2014, if the first aggregate layer of excess coverage
becomes fully utilized, then the self-insured retention will increase to $10 million per claim for any subsequent
claims in that policy year until our total aggregate coverage is met.
Effective June 1, 2014, the hospitals acquired from HMA were insured on a claims-made basis as described
above and through commercial insurance companies as described above for substantially all claims reported on
or after June 1, 2014 except for physician-related claims with an occurrence date prior to June 1, 2014. Prior to
June 1, 2014, the former HMA hospitals obtained insurance coverage through a wholly-owned captive insurance
subsidiary and a risk retention group subsidiary which are domiciled in the Cayman Islands and South Carolina,
respectively. Those insurance subsidiaries, which are collectively referred to as the “Insurance Subsidiaries,”
provided (i) claims-made coverage to all of the former HMA hospitals and (ii) occurrence-basis coverage to most
of the physicians employed by the former HMA hospitals. The employed physicians not covered by the
Insurance Subsidiaries generally maintained claims-made policies with unrelated third party insurance
companies. To mitigate the exposure of the program covering the former HMA hospitals and other healthcare
facilities, the Insurance Subsidiaries bought claims-made reinsurance policies from unrelated third parties for
claims above self-retention levels of $10 million or $15 million per claim, depending on the policy year.
Effective January 1, 2008, the former Triad Hospitals, Inc., or Triad, hospitals were insured on a claims-made
basis as described above and through commercial insurance companies as described above for substantially all
claims occurring on or after January 1, 2002 and reported on or after January 1, 2008. Substantially all losses for
the former Triad hospitals in periods prior to May 1, 1999 were insured through a wholly-owned insurance
subsidiary of HCA Holdings, Inc., or HCA, Triad’s owner prior to that time, and excess loss policies maintained
by HCA. HCA has agreed to indemnify the former Triad hospitals in respect of claims covered by such insurance
policies arising prior to May 1, 1999. From May 1, 1999 through December 31, 2006, the former Triad hospitals
obtained insurance coverage on a claims incurred basis from HCA’s wholly-owned insurance subsidiary with
excess coverage obtained from other carriers that is subject to certain deductibles. Effective for claims incurred
after December 31, 2006, Triad began insuring its claims from $1 million to $5 million through its wholly-owned
captive insurance company, replacing the coverage provided by HCA. Substantially all claims occurring during
2007 were self-insured up to $10 million per claim.
Income Taxes
We must make estimates in recording provision for income taxes, including determination of deferred tax
assets and deferred tax liabilities and any valuation allowances that might be required against the deferred tax
assets. We believe that future income will enable us to realize certain deferred tax assets, subject to the valuation
allowance we have established.
The total amount of unrecognized benefit that would impact the effective tax rate, if recognized, was
approximately $5 million as of December 31, 2015. A total of approximately $2 million of interest and penalties
is included in the amount of liability for uncertain tax positions at December 31, 2015. It is our policy to
recognize interest and penalties related to unrecognized benefits in our consolidated statements of income as
income tax expense.
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