17. ACCRUED WORKERS' COMPENSATION AND PNEUMOCONIOSIS BENEFITS

The ARLP Partnership provides income replacement and medical treatment for work-related traumatic injury claims as required by applicable state laws. Workers' compensation laws also compensate survivors of workers who suffer employment related deaths. Certain of the ARLP Partnership's mine operating entities are liable under state statutes and the Federal Coal Mine Health and Safety Act of 1969, as amended, to pay benefits for black lung disease (or pneumoconiosis) to eligible employees and former employees and their dependents. Both pneumoconiosis and traumatic claims are covered through its self-insured programs.

The following is a reconciliation of the changes in workers' compensation liability (including current and long-term liability balances) at December 31, 2017 and 2016:


	2017		2016
	(in thousands)

Beginning balance	$	48,131	$	54,558
Accruals increase		17,066		10,450
Payments		(10,769)		(10,415)
Interest accretion		1,681		1,967
Valuation gain		(1,670)		(8,429)
Ending balance	$	54,439	$	48,131

The discount rate used to calculate the estimated present value of future obligations for workers' compensation was 3.22%, 3.52% and 3.63% at December 31, 2017, 2016 and 2015, respectively.

The 2017 valuation gain was primarily attributable to favorable changes in claims development partially offset by the decrease in the discount rate used to calculate the estimated present value of future obligations. The 2016 valuation gain was primarily attributable to favorable changes in claims development partially offset by the decrease in the discount rate used to calculate the estimated present value of future obligations.

As of December 31, 2017 and 2016, the ARLP Partnership had $89.2 million and $89.1 million, respectively, in surety bonds and letters of credit outstanding to secure workers' compensation obligations.

The ARLP Partnership limits its exposure to traumatic injury claims by purchasing a high deductible insurance policy that starts paying benefits after deductibles for the particular claim year have been met. The workers' compensation liability above is presented on a gross basis and does not include expected receivables on the ARLP Partnership insurance policy. Receivables for traumatic injury claims under this policy as of December 31, 2017 are $9.0 million and are included in Other long-term assets on our consolidated balance sheet.

The following is a reconciliation of the changes in pneumoconiosis benefit obligations at December 31, 2017 and 2016:


	2017		2016
	(in thousands)

Benefit obligations at beginning of year	$	64,988	$	61,693
Service cost		2,255		2,578
Interest cost		2,555		2,506
Actuarial loss		7,938		205
Benefits and expenses paid		(2,877)		(1,994)
Benefit obligations at end of year	$	74,859	$	64,988

The following is a reconciliation of the changes in the pneumoconiosis benefit obligation recognized in AOCL for the years ended December 31, 2017, 2016 and 2015:


	2017		2016		2015
	(in thousands)

Net actuarial loss	$	(7,938)	$	(205)	$	(750)
Reversal of amortization item:
Net actuarial gain		(2,092)		(2,643)		(451)
Total recognized in accumulated other comprehensive loss	$	(10,030)	$	(2,848)	$	(1,201)

The discount rate used to calculate the estimated present value of future obligations for pneumoconiosis benefits was 3.49%, 3.97% and 4.16% at December 31, 2017, 2016 and 2015, respectively.


	2017		2016		2015
	(in thousands)
Amount recognized in accumulated other comprehensive loss consists of:
Net actuarial loss (gain)	$	8,648	$	(1,382)	$	(4,230)

The actuarial loss component of the change in benefit obligations in 2017 was primarily attributable to the decrease in the discount rate used to calculate the estimated present value of the future obligations, an increase in the assumed future medical benefits, and closure of a state fund which historically shared indemnity costs on state pneumoconiosis claims. The actuarial loss component of the change in benefit obligations in 2016 was primarily attributable to the decrease in the discount rate used to calculate the estimated present value of the future obligations which was partially offset by favorable claims development changes.

Summarized below is information about the amounts recognized in the accompanying consolidated balance sheets for pneumoconiosis and workers' compensation benefits at December 31, 2017 and 2016:


	2017		2016
	(in thousands)

Workers' compensation claims	$	54,439	$	48,131
Pneumoconiosis benefit claims		74,859		64,988
Total obligations		129,298		113,119
Less current portion		(10,729)		(9,897)
Non-current obligations	$	118,569	$	103,222

Both the pneumoconiosis benefit and workers' compensation obligations were unfunded at December 31, 2017 and 2016.

The pneumoconiosis benefit and workers' compensation expense consists of the following components for the years ended December 31, 2017, 2016 and 2015:


	2017		2016		2015
	(in thousands)

Service cost	$	2,255	$	2,578	$	3,081
Interest cost		2,555		2,506		2,094
Net amortization		(2,092)		(2,643)		(451)
Total pneumoconiosis expense		2,718		2,441		4,724
Workers' compensation expense		12,215		9,063		9,759
Total expense	$	14,933	$	11,504	$	14,483

See Note 2 – Summary of Significant Accounting Policies for more information on our accounting policy for workers' compensation and pneumoconiosis benefits.