CHICAGO, July 17, 2012 /PRNewswire/ -- Long term care liability loss rates and claim severity reached an eight-year high and are expected to grow steadily in 2013 against a backdrop of health care provider budget constraints and uncertainty about health care reform, according to Aon Risk Solutions, the global risk management business of Aon plc (AON). This finding is illustrated in the 2012 Aon Long Term Care General Liability and Professional Liability Actuarial Analysis, released July 12 in partnership with the American Health Care Association.

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Since 2005, the annual loss rate (liability costs relative to occupied long term care beds) has grown from $1,040 to a projected $1,480 in 2012 and is expected to increase again in 2013 to $1,540, according to the report based on 19,500 individual claims from long term care facilities. Claim severity (claim size) also has grown from a low of $109,000 per claim in 2005 to a projected $168,000 per claim in 2012 and $175,000 in 2013. Claim severity and loss rates have been growing consistently since 2009 at a rate of 4 percent annually, even though claim frequency has been stable since 2008.

"Long term care and skilled nursing centers strive to provide quality care each day, but they also must find ways to cope with the ever-increasing cost of doing business and multiple rounds of funding reductions at the state and federal level. This report underscores the need to continue to utilize tools like voluntary arbitration agreements, a cost-effective option for long term care providers and their residents to resolve legal disputes," said Governor Mark Parkinson, president and CEO of AHCA/NCAL.

Liability and the Long Term Care Profession Long term care providers faced high loss rates in the late 1990s and early 2000s. Over the years, they answered this challenge by reinvesting in patient safety, developing liability defenses, advocating for limits on tort damages and implementing arbitration. While these efforts helped providers control the growth of liability costs, reductions in Medicare reimbursement rates and health care reform have had an impact on long term care provider revenue and budgets.

"With reduced revenue, providers may have difficulties funding expansion and improvements, maintaining facilities and hiring and training qualified caregivers," said Christian Coleianne, associate director and actuary at Aon Global Risk Consulting. "These competing priorities have the potential to impact liability costs. By providing access to this invaluable data, we are enhancing our clients' ability to better understand and more effectively manage these risks."

The Patient Protection and Affordable Care Act encourages closer coordination of care with additional health care providers with the expectation of reduced costs. Interaction between long term care providers and dependence on other health care providers may increase exposure as the new system is expected to operate at a lower cost.

Loss Rates by State State laws and the state judiciary have a tremendous influence on liability costs. As a result, state loss rates vary considerably. For example, tort limits on awards are constitutionally prohibited in Kentucky, which has the highest loss rate in this study ($5,120 per bed for 2012). In contrast, Texas amended its constitution to protect its tort limits and has the lowest projected loss rate ($320 per bed for 2012).

"Malpractice costs and the tort environment are often major considerations in the decision to locate and invest in long term care beds and services in a specific state," said Dom Colaizzo, chairman of the National Health Care Practice for Aon Risk Solutions. "This ultimately affects the supply of beds and cost to seniors and their families in a marketplace where demand is growing for senior care and constrained by reduced reimbursements."

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Aon forecasts eight-year high for long term care liability loss rates, claim severity