Aon Study: Liability Cost Grows 182% in the Long Term Care Sector Since 1996

An Aon study, commissioned by the American Health Care Association and released Thursday, has found that, across the United States, the frequency of claims filed annually has more than
doubled and severity has tripled in the long term care sector since 1996.

The Long Term Care 2005 General Liability and Professional Liability
Benchmark Analysis found that general liability and professional liability (GL/PL) costs for the long term care profession have increased 182 percent since 1996. It also recorded that the annual patient care liability cost for each occupied bed in a long term care facility has grown from $430 in 1993 to $2,310 in 2004.

“Following trends initially observed in Florida and Texas, an alarming
number of states are experiencing dramatic increases for GL/PL coverage,” said Theresa Bourdon, managing director and actuary at Aon. “In fact, 14 of the 16 states analyzed experienced double-digit annual increases in their GL/PL costs over the past decade, with a majority of them experiencing loss cost trends in excess of 25 percent.”

The most notable states experiencing escalating loss costs are Arkansas, Mississippi, California, Georgia, Alabama, Arizona and Tennessee.

The study, which represents 23 percent of the total number of long term care beds in the United States, reveals that tort reform passed in Texas in 2003, and strengthened by a constitutional amendment, appears to be having the greatest impact among the states analyzed on reducing GL/PL claim costs. GL/PL loss costs in Texas peaked at $6,720 in 2002 but have dropped substantially to $3,390 in 2004.

The study also found that the number of claims per year that long term
care operators incur has more than doubled, from 6.2 per 1,000 occupied skilled nursing care beds in 1996 to 13.1 in 2004, and the average cost per claim has increased to close to $180,000. As well, the study found that annual commercial insurance premium levels have increased for the fourth straight year.

“The long term care liability crisis is forcing scarce Medicaid taxpayer
dollars intended to fund quality long term care services for our nation’s
frail, elderly and disabled to be diverted to pay for unnecessary defense costs and inordinately expensive settlements,” said Hal Daub, president and CEO of the American Health Care Association and the National Center For Assisted Living. “This Aon study illustrates that trial attorney fees and other litigation expenses make up nearly half of the total amount of costs paid for liability claims in long term care. These are funds that ought to be directed to patient care.”

The analysis is based on data from 76 long term care providers operating around the country. The participants combined currently operate approximately 445,000 long term care beds, consisting primarily of skilled nursing facility beds, but also including a number of independent living, assisted living, home health care and rehabilitation beds.

To access the complete study and gather more detailed information on individual states, visit http://www.aon.com or http://www.ahca.org .