Liability loss costs for the long-term care industry are stable on a national average basis for the first time in nine years, according to a broker study released on Monday.
A study by Chicago-based Aon Corp. found that average general liability and professional liability loss costs nationwide are now at about $1,460 per bed after peaking at $2,030 per bed in 1998.
The plunge from the 1998 level, Aon said, is driven by a reduction in the average claims severity from a high of $261,000 in 1998 to $138,000 in 2007.
In addition, the number of claims has stabilized in recent years, hovering around 10.6 claims per 1,000 occupied beds, Aon reported in the study titled "The Long Term Care 2008 General Liability and Professional Liability Actuarial Analysis."
The study, which has the endorsement of the American Health Care Association, utilized data representing 15 percent of the total number of long-term care beds in the United States. Aon said claims data from roughly 20,300 individual non-zero claims used for the study came from 37 long-term care providers operating around the country.
In a statement announcing the results, Theresa W. Bourdon, managing director and actuary for Aon Global Risk Consulting, said, "The impact of tort reform has been lasting, but it is not the only factor contributing to the stabilization of liability costs in the long-term care sector."
Among other changes she listed are:
o The withdrawal of some long-term care facilities operators from expensive markets
o More effective defense strategies.
o The use of arbitration for claims settlement.
o Significant improvements in quality of care.
Ms. Bourdon said all these factors, as well as tort reform, have combined to help alleviate the liability crisis.
In addition to reviewing trends nationwide, the analysis reviewed 13 states in detail, finding that some states reported increasing loss cost levels.
Of the profiled states, Aon said Alabama, California, Massachusetts, Ohio, Pennsylvania, Tennessee and Wisconsin showed increases, while Arkansas, Florida, Indiana, New Jersey, Texas and West Virginia were among the states showing stable or decreasing loss cost levels.
Liability costs dropped significantly in states that passed tort reform in the last several years, Aon reported. As a group, the average loss cost of these states–Florida, Georgia, Louisiana, Mississippi, Ohio, Texas and West Virginia–dropped from $7,190 in 1998 to an estimated loss cost of $1,230 in 2005.
Thereafter, Aon said, the average loss cost for these states increased only slightly–to $1,270 in 2007.
According to Aon, both frequency and severity declines contributed to the overall loss costs declines in states that have passed tort reform.
o The number of claims per 1,000 occupied beds for this group peaked at 20.9 in 2002 and has since dropped to 12.2 in 2007.
o The average claim size plunged from $384,000 in 1998 to $104,000 in 2007.
Turning to high-cost states, Aon said Arkansas–at an average loss cost of $5,460 per occupied bed–has the highest of any state.
Tennessee has the second highest loss cost at $4,510, and California was the third at $3,410.
Aon attributed the high loss costs in these states to average severities that are well above the national average. For example, Aon reported that Tennessee had a 2007 indicated average severity of $455,000, compared to the national average of $138,000.
The complete study can be purchased for $350 by visiting www.ahcancal.org. For more information, go to www.aon.com.
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