Long-term care liability loss rates and severity at a high
Long-term care liability loss rates and claim severity have reached an eight-year high and are expected to grow steadily in 2013 against a backdrop of healthcare provider budget constraints and uncertainty about healthcare reform, according to a new report from Aon Risk Solutions, the global risk management business of Aon.
Aon Global Risk Consulting released its “2012 Long Term Care General Liability and Professional Liability Actuarial Analysis” in partnership with the American Health Care Association (AHCA) in Washington, DC.
Since 2005, the annual loss rate (liability costs relative to occupied long term care beds) has grown from $1,040 to a projected $1,480 in 2012 and is expected to increase again in 2013 to $1,540, according to the report based on 19,500 individual claims from long-term care facilities. Claim severity (claim size) also has grown from a low of $109,000 per claim in 2005 to a projected $168,000 per claim in 2012 and $175,000 in 2013. Claim severity and loss rates have been growing consistently since 2009 at a rate of 4% annually, even though claim frequency has been stable since 2008, Gov. Mark Parkinson, president and CEO of AHCA, said in a statement released with the report.
“Long-term care and skilled nursing centers strive to provide quality care each day, but they also must find ways to cope with the ever-increasing cost of doing business and multiple rounds of funding reductions at the state and federal level,” Parkinson said. “This report underscores the need to continue to utilize tools like voluntary arbitration agreements, a cost-effective option for long term care providers and their residents to resolve legal disputes.”
Long-term care providers faced high loss rates in the late 1990s and early 2000s, Parkinson said. Over the years, they answered this challenge by reinvesting in patient safety, developing liability defenses, advocating for limits on tort damages, and implementing arbitration. While these efforts helped providers control the growth of liability costs, reductions in Medicare reimbursement rates and healthcare reform have had an impact on long-term care provider revenue and budget, says Christian Coleianne, associate director and actuary at Aon Global Risk Consulting in Washington, DC.
“With reduced revenue, providers may have difficulties funding expansion and improvements, maintaining facilities, and hiring and training qualified caregivers,” Coleianne says. “These competing priorities have the potential to impact liability costs. By providing access to this invaluable data, we are enhancing our clients’ ability to better understand and more effectively manage these risks.”
The Affordable Care Act (ACA) encourages closer coordination of care with additional healthcare providers with the expectation of reduced costs, Coleianne notes. Interaction between long-term care providers and dependence on other healthcare providers might increase exposure as the new system is expected to operate at a lower cost, he says.
State laws and the state judiciary have a tremendous influence on liability costs, Coleianne says. As a result, state loss rates vary considerably. For example, the report notes that tort limits on awards are constitutionally prohibited in Kentucky, which has the highest loss rate in this study ($5,120 per bed for 2012). In contrast, Texas amended its constitution to protect its tort limits and has the lowest projected loss rate ($320 per bed for 2012).
Kentucky’s loss rate has increased dramatically over the past eight years. The 2012 projected loss rate of $5,120 is the highest projection of any of the profiled states. Kentucky’s constitution prevents limitations on tort awards, which makes the state an attractive venue for tort, the report says.
Providers become more willing to settle for higher amounts to avoid trials when the potential for unlimited judgments exists, according to the report. The projected 2012 claim frequency of 1.64%, which has been increasing since 2007, is the highest of the profiled states. Claim severity in Kentucky, projected at $313,000 for 2012, is twice that of the overall average claim severity in this study and the second highest of the profiled states.
These are some other state results:
• West Virginia’s loss rate exhibits a strong upward trend. The 2012 forecast of $4,430 per occupied bed is the second highest of the profiled states. West Virginia has the third highest claim frequency among the profiled states, with a 2012 forecast of 1.36%. The state has the highest projected claim severity at $326,000, showing persistent growth since 2005.
• Tennessee’s loss rate has increased in recent years from $1,560 in 2008 to a projected $3,380 in 2012. Tort limits recently were enacted in the state, and Aon’s study shows an increase in claim frequency as claimants move to assert their claims before the limits become effective. This pattern is typically followed by a decrease in claim frequency as the caps reduce the upper bound of claim sizes and lessen the incentive to pursue claims. Claim frequency in Tennessee is projected at 1.13% in 2012. Claim severity drives Tennessee’s loss rates relative to other states. At $300,000, Tennessee’s 2012 claim severity forecast is third highest among the profiled states.
• Texas’s loss rate, projected at $320 per bed in 2012, is the lowest loss rate of the profiled states, as are its claim frequency and claim severity. Texas enacted tort reform in 2003 and shortly thereafter saw remarkable reductions in loss rates, from an estimated $5,500 per occupied bed before the tort reform to under $1,000 in 2004. The 2012 claim frequency forecast is 0.43%, and the 2012 claim severity forecast is $73,000.
The free full report can be downloaded at http://tinyurl.com/bs4sedv.
Long-term care liability loss rates and claim severity have reached an eight-year high and are expected to grow steadily in 2013 against a backdrop of healthcare provider budget constraints and uncertainty about healthcare reform, according to a new report from Aon Risk Solutions, the global risk management business of Aon.You have reached your article limit for the month. Subscribe now to access this article plus other member-only content.
- Award-winning Medical Content
- Latest Advances & Development in Medicine
- Unbiased Content