Newsletter Sign-up

By DAN REYNOLDS, senior editor of Risk & Insurance®

When it comes to managing loss costs per bed in long-term-care facilities, some states are having more success than others, a new study finds.

West Virginia, often seen as a "judicial hellhole," seems to be having the most trouble getting a grip on long-term-care loss costs. In 2005, lost costs per bed in that state were $1,940. In 2006, the amount jumped to $3,240. In 2009, it reached $3,770, second highest in the study.

Why the rise? West Virginia's judicial climate may play a role, said Chris Coleianne, an associate director and actuary in Aon's analytics practice.

In 2004, West Virginia implemented caps on liability. Noneconomic damages are limited to $250,000 in most cases, inflation adjusted since 2004. But "neither frequency nor severity seems to have been tempered in the years since this reform was enacted," Coleianne and his co-author, Associate Director and Actuary Donald Riggins, wrote in their report.

"When you look at their caps, they are in line with what you think would be effective," Coleianne said. That's why Coleianne believes the state's judiciary could be a significant factor.

Arkansas also has problems but of a different kind. Long-term healthcare providers in that state have been able to report steadily decreasing loss costs per bed since 2006. In that year, Arkansas reported a $6,070 loss cost per bed. Things have settled down to the point that Arkansas reported $3,990 per bed in 2009, but that still left that state with the highest loss costs in the study.

Arkansas's statutes are a little looser than those in Texas, which many regard as the gold standard in tort reform. The home of the Razorbacks has a cap on noneconomic damages of $250,000, or three times the economic damages, not to exceed $1 million.

The Lone Star State, according to Coleianne, has a very rigid cap of $250,000 on noneconomic damages that applies per claimant and per institution.

"You have got the $250,000 hard cap, and those reforms have been sustained for years," Coleianne said.

Tennessee, which rounds out the unlucky three, doesn't have legislated limits on tort awards, and repeated efforts at tort reform in that state have been failures, according to Aon's analysis. Tennessee registered a $3,070 loss cost per long-term-care bed, third highest in the study.

By way of comparison, Indiana, Massachusetts, North Carolina and Texas all registered average loss costs of less than $500 per bed for the 2009 accident year.

Arkansas, West Virginia and Tennessee aside, the Aon study bears good news. Loss frequency is stable or decreasing overall, and severity is stable.

The data was gleaned from the 2009 accident year, during which 17,000 individual claims representing 260,000 long-term-care beds nationally were studied. There were 24 healthcare providers with national operations that reported the data to Aon.

August 13, 2010

Copyright 2010© LRP Publications