Accruals for Self-Insurance and Other Commitments and Contingencies

9 Months Ended

Jun. 30, 2012

Accruals for Self-Insurance and Other Commitments and Contingencies [Abstract]

Accruals for Self-Insurance and Other Commitments and Contingencies

13. Accruals for Self-Insurance and Other Commitments and Contingencies

The Company maintains insurance for professional and general liability, workers’ compensation liability, automobile liability and health insurance liabilities that includes self-insured retentions. The Company intends to maintain such coverage in the future and is of the opinion that its insurance coverage is adequate to cover potential losses on asserted claims. Employment practices liability is fully self-insured.

The Company records expenses related to claims on an incurred basis, which includes estimates of fully developed losses for both reported and unreported claims. The accruals for the health, workers’ compensation, automobile, and professional and general liability programs are based on analyses performed by management and take into account reports by independent third parties. Accruals are periodically reevaluated and increased or decreased based on new information.

For professional and general liability, from October 1, 2010 through September 30, 2011, the Company was self-insured for $2.0 million per claim and $8.0 million in the aggregate, and for $500 thousand per claim in excess of the aggregate. Commencing October 1, 2011, the Company is self-insured for the first $4.0 million of each and every claim with no aggregate limit. In connection with the Merger on June 29, 2006, subject to $1.0 million per claim and up to $2.0 million in aggregate retentions, the Company purchased additional insurance for certain claims relating to pre-Merger periods.

For workers’ compensation, the Company has a $350 thousand per claim retention with statutory limits. Automobile liability has a $100 thousand per claim retention, with additional insurance coverage above the retention. The Company purchases specific stop loss insurance as protection against extraordinary claims liability for health insurance claims. Stop loss insurance covers claims that exceed $300 thousand on a per member basis.

During the first quarter of fiscal 2012, the Company adopted Accounting Standards Update No 2010-24, Health Care Entities (Topic 954), Presentation of Insurance Claims and Related Insurance Recoveries (“ASU 2010-24”), which clarifies that companies should not net insurance recoveries against related claim liabilities. Additionally, the amount of the claim liability should be determined without consideration of insurance recoveries. The Company adopted ASU 2010-24 prospectively and the impact of the adoption is reflected on the June 30, 2012 consolidated balance sheets. Had the Company adopted ASU 2010-24 as of September 30, 2011, current assets and current liabilities would have been $187.1 million and $148.0 million, respectively. Total assets and liabilities would have been $1,046.8 million and $1,078.0 million, respectively.

A summary of the assets and liabilities related to the Company’s insurance programs at June 30, 2012 and pro forma at September 30, 2011 are as follows:

(in thousands)	June 30, 2012 (1)		September 30, 2011 (2)
Assets
Anticipated insurance recoveries
Current	$	12,640	$	20,872
Long term		22,720		15,110
Total Assets	$	35,360	$	35,982
Liabilities
Self-insured liabilities
Current	$	31,089	$	36,149
Long term		58,562		42,125
Total Liabilities	$	89,651	$	78,274

(1) Anticipated insurance recoveries are presented in Prepaid expenses and other current assets and Other assets on the Company’s consolidated balance sheets. Self-insured liabilities are presented in Accrued payroll and related costs, Other accrued liabilities and Other long-term liabilities on the Company’s consolidated balance sheets.

(2) Pro forma – as if the Company adopted as of September 30, 2011.

The Company is in the health and human services business and, therefore, has been and continues to be subject to substantial claims alleging that the Company, its employees or its independently contracted host-home caregivers (“Mentors”) failed to provide proper care for a client. The Company is also subject to claims by its clients, its employees, its Mentors or community members against the Company for negligence, intentional misconduct or violation of applicable laws. Included in the Company’s recent claims are claims alleging personal injury, assault, battery, abuse, wrongful death and other charges. Regulatory agencies may initiate administrative proceedings alleging that the Company’s programs, employees or agents violate statutes and regulations and seek to impose monetary penalties on the Company. The Company could be required to incur significant costs to respond to regulatory investigations or defend against civil lawsuits and, if the Company does not prevail, the Company could be required to pay substantial amounts of money in damages, settlement amounts or penalties arising from these legal proceedings.

The Company reserves for costs related to contingencies when a loss is probable and the amount is reasonably estimable. While the Company believes the provision for legal contingencies is adequate, the outcome of the legal proceedings is difficult to predict and the Company may settle legal claims or be subject to judgments for amounts that differ from the Company’s estimates.