LTC Liability Costs Rise 22% in 2010 says Study

A new report shows the severity of liability claims for long term care costs increased steadily from $125,000 in 2005 to $153,000 in 2010.

Released by the Aon Corporation in partnership with the American Health Care Association, the study found claims severity is projected to reach $159,000 in 2011.

In addition, the average annual loss rate per bed, which has hovered around $1,400 for the past five years, is projected to be $1,430 in 2011. Likewise, since 2005, the loss cost as a percentage of the Medicaid per diem reimbursement rate has been near its 2010 level of 2.22 percent.

Advertisement

While claim severity has grown, liability claims frequency has decreased from 1.07 percent in 2003 to 0.91 percent in 2010. Claims frequency is projected to drop slightly to 0.90 percent in 2011, which means less than one liability claim will arise for every 110 residents in a long term care facility.

The increase in the size of claims outweighs the decrease in claim incidence. The resulting growth in liability costs is important for long term care providers, who also must contend with uncertain Medicaid funding and cuts in Medicare reimbursement, which took effect in October 2010. Providers need to explore ways to control the growth of liability costs to preserve an already threatened funding base.

“For the long term care profession, controlling liability costs is necessary if we are to make do with dwindling resources for patient care and adequate staffing,” said former Kansas Governor Mark Parkinson, president and CEO of AHCA.

Advertisement

Tort reform has been used to help control liability costs. The way tort reform legislation is drafted is critical to its effectiveness. Aon Global Risk Consulting’s associate director and actuary Christian Coleianne, who coauthored the study, explained:

“Limiting non-economic damage awards alone may not be enough to control liability costs. California caps non-economic damage awards at $250,000, yet liability costs in the state remain among the highest in our study – largely due to provisions in California’s Elder and Dependent Adult Civil Protection Act that run counter to the long-standing MICRA caps on non-economic damages. Tort reform laws have been circumvented in West Virginia as well, where liability costs are the highest in our study. Texas-style tort reform, where constitutional amendments have protected a hard cap on damages since 2003, stands in sharp contrast to both California and West Virginia. Since Texas implemented tort reform, loss rates have been among the lowest in our database, which underscores the point that tort reform is supported by constitutional protections is highly effective in controlling liability costs.”

 

Recommended SHN+ Exclusives