Study Shows LTC Liability Costs On the Rise

The growth of long-term care liability costs can be attributed to a 4% annual increase in the average claim size, according to a study by Aon Corporation in partnership with the American Health Care Association (AHCA).

The yearly analysis measures the severity and frequency of liability claims, tracks the loss rate (liability cost) as a percentage of the Medicaid per diem reimbursement rate and calculates the overall loss rate per occupied LTC bed in the U.S. to help gauge the level of risk facing LTC providers.

Nationwide, the severity of liability claims increased steadily from $125,000 in 2005 to $153,000 in 2010, according to the study. In 2011, claims severity is projected to reach $159,000. 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%.

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

“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 Mark Parkinson, president and CEO of AHCA.

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Aon Risk Solutions’ 2011 Long Term Care General Liability and Professional Liability Actuarial Analysis (PDF)