9. POSTRETIREMENT MEDICAL BENEFITS

The Company provides postretirement medical benefits to retired employees and their dependents, mandated by the Coal Industry Retiree Health Act of 1992 and pursuant to collective bargaining agreements. The Company also provides these benefits to qualified full-time employees pursuant to collective bargaining agreements. These benefits are provided through self-insured programs.

The following table sets forth the actuarial present value of postretirement medical benefit obligations and amounts recognized in the Company’s financial statements:



	December 31,
	2015			2014
	(In thousands)
Change in benefit obligations:
Net benefit obligation at beginning of year	$	306,418		$	284,329
Service cost	4,217			3,289
Interest cost	11,629			12,814
Plan participant contributions	185			149
Actuarial loss (gain)	(7,322		)	19,441
Gross benefits paid	(17,013		)	(14,860		)
Federal subsidy on benefits paid	1,259			1,256
Net benefit obligation at end of year	299,373			306,418
Change in plan assets:
Employer contributions	16,828			14,711
Plan participant contributions	185			149
Gross benefits paid	(17,013		)	(14,860		)
Fair value of plan assets at end of year	—			—
Unfunded status at end of year	$	(299,373	)	$	(306,418	)
Amounts recognized in the balance sheet consist of:
Current liabilities	$	(13,855	)	$	(13,263	)
Noncurrent liabilities	(285,518		)	(293,156		)
Accumulated other comprehensive loss	31,085			39,716
Net amount recognized	$	(268,288	)	$	(266,703	)
Amounts recognized in accumulated other comprehensive loss consists of:
Net actuarial loss	$	35,534		$	44,800
Prior service credit	(4,449		)	(5,084		)
	$	31,085		$	39,716

The Company has elected to amortize its transition obligations over a 20-year period. Prior service costs and credits and actuarial gains and losses are amortized over the average life expectancy or average future service of the plan’s participants. The following amounts will be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2016 (in millions):



Actuarial loss	$	1.4
Prior service credit	(0.6		)

The components of net periodic postretirement medical benefit cost are as follows:



	Years Ended December 31,
	2015			2014			2013
	(In thousands)
Components of net periodic benefit cost:
Service cost	$	4,217		$	3,289		$	4,436
Interest cost	11,629			12,814			12,139
Amortization of:
Prior service credit	(636		)	(635		)	(636		)
Actuarial loss	1,944			653			4,641
Total net periodic benefit cost	$	17,154		$	16,121		$	20,580

The following table shows the net periodic postretirement medical benefit costs that relate to current and former mining operations:



	Years Ended December 31,
	2015		2014		2013
	(In thousands)
Former mining operations	$	8,137	$	9,614	$	12,475
Current operations	9,017		6,507		8,105
Total net periodic benefit cost	$	17,154	$	16,121	$	20,580

The costs for the former mining operations are included in Heritage health benefit expenses and the costs for current operations are included as operating expenses.

Assumptions

The weighted-average assumptions used to determine the benefit obligations as of the end of each year were as follows:



	December 31,
	2015	2014
Discount rate	4.10% - 4.65%	3.75% - 4.25%
Measurement date	December 31, 2015	December 31, 2014

The discount rate is adjusted annually based on an Aa corporate bond index adjusted for the difference in the duration of the bond index and the duration of the benefit obligations. This rate is calculated using a yield curve, which is developed using the average yield for bonds in the tenth to ninetieth percentiles, which excludes bonds with outlier yields.

The weighted-average assumptions used to determine net periodic benefit cost were as follows:



	December 31,
	2015	2014	2013
Discount rate	3.75% - 4.25%	4.50% - 5.05%	3.60% - 4.15%
Measurement date	December 31, 2014	December 31, 2013	December 31, 2012

The following presents information about the assumed health care trend rate:



	December 31,
	2015		2014
Health care cost trend rate assumed for next year	7.00	%	6.50	%
Rate to which the cost trend is assumed to decline (ultimate trend rate)	4.75	%	5.00	%
Year that the trend rate reaches the ultimate trend rate	2025		2021

The effect of a one percent change on the health care cost trend rate used to calculate periodic postretirement medical benefit costs and the related benefit obligation are summarized in the table below:



	Postretirement Medical Benefits
	1 % Increase		1 % Decrease
	(In thousands)
Effect on service and interest cost components	$	3,235	$	(2,444	)
Effect on postretirement medical benefit obligation	$	41,360	$	(33,667	)

Cash Flows

The following benefit payments and Medicare D subsidy (which the Company receives as a benefit partially offsetting its prescription drug costs for retirees and their dependents) are expected by the Company:



	Postretirement Medical Benefits		Medicare D Subsidy			Net Postretirement Medical Benefits
	(In thousands)
2016	$	13,855	$	(1,388	)	$	12,467
2017	14,250		(1,457		)	12,793
2018	14,744		(1,516		)	13,228
2019	15,205		(1,573		)	13,632
2020	15,627		(1,623		)	14,004
Years 2021 - 2025	82,997		(8,830		)	74,167

Combined Benefit Fund

Additionally, the Company makes payments to the UMWA Combined Benefit Fund, or CBF, which is a multiemployer health plan neither controlled by nor administered by the Company. The CBF is designed to pay health care benefits to UMWA workers (and dependents) who retired prior to 1976. The Company is required by the Coal Act to make monthly premium payments into the CBF. These payments are based on the number of the Company’s UMWA employees who retired prior to 1976, and the Company’s pro-rata assigned share of UMWA retirees whose companies are no longer in business. Contributions to the CBF have decreased over the past three years due to a declining population. The Company expenses payments to the CBF when they are due. The following payments were made to the CBF (in millions):



2015	$	1.8
2014	2.0
2013	2.2

Workers’ Compensation Benefits

The Company was self-insured for workers’ compensation benefits prior to January 1, 1996. Since 1996, the Company has purchased third-party insurance for workers’ compensation claims.

The following table shows the changes in the Company’s workers’ compensation obligation:



	December 31,
	2015			2014
	(In thousands)
Workers’ compensation, beginning of year (including current portion)	$	6,986		$	7,461
Accretion	127			200
Claims paid	(448		)	(405		)
Actuarial changes	(1,007		)	(270		)
Workers’ compensation, end of year	5,658			6,986
Less current portion, included in Other current liabilities	(590		)	(671		)
Workers’ compensation, less current portion	$	5,068		$	6,315

The discount rates used in determining the workers’ compensation benefit accruals are adjusted annually based on ten-year Treasury bond rates. At December 31, 2015 and 2014, the rates were 2.2% and 2.0%, respectively.

Black Lung Benefits

The Company is self-insured for federal and state black lung benefits for former heritage employees and has established an independent trust to pay these benefits.

The following table sets forth the funded status of the Company’s black lung obligation:



	December 31,
	2015		2014
	(In thousands)
Actuarial present value of benefit obligation:
Expected claims from terminated employees	$	2,472	$	953
Amounts owed to existing claimants	15,318		13,054
Total present value of benefit obligation	17,790		14,007
Plan assets at fair value	570		2,755
Excess of the black lung benefit obligation over trust assets	$	17,220	$	11,252

The discount rates used in determining the actuarial present value of the black lung benefit obligation are based on corporate bond yields and are adjusted annually. At December 31, 2015 and 2014, the rates used were 3.95% and 3.40%, respectively.

Plan Assets

The Company's trust assets include cash and cash equivalents and U.S treasury securities, and are all valued at level 1 in the fair value hierarchy (refer to Note 14 - Fair Value Measurements). The fair value of all trust assets is determined based on quoted prices in active markets. The fair value of the Company’s Black Lung trust assets by asset category is as follows:



	Fair Value as of
	December 31, 2015		December 31, 2014
	(In thousands)
U.S. treasury securities	$	256	$	2,615
Cash and cash equivalents	314		140
	$	570	$	2,755