Highest Long Term Care Liability Costs In Arkansas, Tennessee And West Virginia

CHICAGO, Aug. 5 /PRNewswire/ -- While long term care liability costs are stable across much of the nation, Arkansas, Tennessee and West Virginia are experiencing exceptionally high expenses – known as loss costs – related to insurance claims, according to Aon Risk Solutions' 2010 Long Term Care General Liability and Professional Liability Actuarial Analysis. Aon Risk Solutions is the risk management business of Aon Corporation (NYSE: AON).

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The study, conducted in partnership with the American Health Care Association, measures the frequency and severity of claims, tracks the loss cost as a percent of the Medicaid per diem reimbursement rate and calculates the overall loss cost per occupied long term care bed.

Nationwide, according to the ARS study, the average annual loss cost per bed has decreased from $1,710 in 2001 to $1,270 in 2009. The frequency rate has slightly decreased from 1.05 percent in 2007 to .94 percent in 2009 and the severity rate has been stable since 2007 at $135,000. The loss cost as a percent of the Medicaid per diem reimbursement rate has also decreased – from 4.07 percent in 2001 to 2.09 percent in 2009.

"Loss cost trends directly impact the cost of commercial insurance and the cost of self-insurance," said Dominic Colaizzo, managing director of Aon Risk Solutions' Health Care practice. "When advising leaders of long term care facilities, we incorporate loss cost trends into an analysis of alternative approaches, looking at both the immediate and long-term impact on the overall cost of risk, to structure the optimal risk financing solution."

Arkansas

Of the states Aon profiled, Arkansas is experiencing the highest loss cost per occupied long term care bed, the most severe claim trend and the highest loss cost as a percent of the Medicaid per diem reimbursement rate. The estimated loss cost per bed in 2009 was $3,990, down from a peak of $6,800 in 2001. While Arkansas remains the highest loss cost of the profiled states, the state's legislature enacted a $1 million cap on noneconomic damages in 2003, which may have had some impact on the downward loss cost trend. In 2009, the average claim severity in Arkansas was $380,000, down $110,000 from 2005. The loss cost as a percent of the Medicaid per diem reimbursement rate was down from 23.98 percent in 2001 to 7.63 percent in 2009.

West Virginia

Since 2001, the loss cost per occupied long term care bed in West Virginia has increased from $1,380 to $3,770 in 2009 – the second highest of the profiled states. At $290,000 per claim, West Virginia's average claim severity was the third highest as was the loss cost as a percent of the Medicaid per diem reimbursement rate at 5.51 percent.

Tennessee

Among the states Aon profiled, Tennessee had the third highest loss cost per occupied long term care bed at $3,070 and the second highest average claim severity at $357,000. Increasing severity per claim was the driver behind loss cost increases. The loss cost as a percent of the Medicaid per diem reimbursement rate was flat over the past several years, but at 5.83 percent, it was still the second highest of the profiled states.

"Arkansas, West Virginia and Tennessee are characterized by claim severity that is several times the nationwide rate. Long term care providers in these markets may have difficulty finding liability insurance at affordable prices," said Christian Coleianne, associate director and actuary of Aon Risk Solutions' Actuarial and Analytics practice. "As a result, providers may carry lower insurance limits or use alternative risk transfer arrangements such as high deductibles or captive insurance companies."

Bruce Yarwood, president and CEO of the American Health Care Association added, "Sound data yields sound results, and helps our members better understand the economic landscape in which they operate every day. The study Aon conducted will help our entire membership gain insight into this often complex fiscal picture; it will certainly be put to good use in the weeks and months ahead."

Methodology

Approximately 17,000 individual nonzero claims from long term care facilities were aggregated by Aon Risk Solutions' Actuarial and Analytics practice to perform this analysis. The facilities operate approximately 260,000 long term care beds, consisting primarily of skilled nursing facility beds, but also including a number of independent living and assisted living beds. The participants represent approximately 14 percent of the beds in the United States.

Note to editors: Graphics illustrating results from the 2001-2009 Long Term Care General Liability and Professional Liability Actuarial Analysis are available upon request.

To access Aon Risk Solutions' 2010 Long Term Care General Liability and Professional Liability Actuarial Analysis, visit http://www.aon.com/ltcbenchmark.

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About Aon

Aon Corporation (NYSE: AON) is a leading global provider of risk management services, insurance and reinsurance brokerage, and human capital consulting. Through its more than 36,000 colleagues worldwide, Aon delivers distinctive client value via innovative and effective risk management and workforce productivity solutions. Aon's industry-leading global resources and technical expertise are delivered locally through more than 500 offices in more than 120 countries. Named the world's best broker by Euromoney magazine's 2008, 2009 and 2010 Insurance Survey, Aon also ranked highest on Business Insurance's listing of the world's largest insurance brokers based on commercial retail, wholesale, reinsurance and personal lines brokerage revenues in 2008 and 2009. A.M. Best deemed Aon the number one insurance broker based on brokerage revenues in 2007, 2008 and 2009, and Aon was voted best insurance intermediary, best reinsurance intermediary and best employee benefits consulting firm in 2007, 2008 and 2009 by the readers of Business Insurance. Visit http://www.aon.com for more information on Aon and http://www.aon.com/unitedin2010 to learn about Aon's global partnership and shirt sponsorship with Manchester United.

SOURCE Aon Corporation