The aging U.S. population will create unprecedented demand for the senior living industry for decades to come and that opens the door for agents and brokers to grow their business in this sector. But understanding the changing landscape in the complex long-term care and senior living market is critical, according to insurance experts in this field.
From a specialization standpoint, knowledge is the best tool to finding success in this market, says Bruce Dmytrow, vice president, aging services and national programs, healthcare, at CNA. Knowledge is helpful when speaking with senior care facility leadership teams and the boards of directors. “It’s where you can truly add value by knowing the segment, knowing the risks, knowing the underwriting challenges, knowing the models of care, [and] knowing the trends that are happening. It gives you more credibility.”
Agents and brokers don’t have to be experts, but they should have a solid understanding of what’s going on in the healthcare industry, says Caroline Clouser, executive vice president, for Chubb Healthcare. “Whether it’s the ongoing repeal-and-replace efforts [for the Affordable Care Act] or the CMS guidelines [Centers for Medicare & Medicaid Services], agents really need to showcase their understanding of the emerging topics related to risk and we can help them to do that.”
According to the U.S. Census Bureau, when the last of the baby boomers reach age 65 in 2029, the boomer population will represent more than 20 percent of the total U.S. population, numbering nearly 60 million people. And about 70 percent of that 65-plus population – including many people with cognitive impairment disorders – requires some form of long-term care, according to the U.S. Department of Health and Human Services.
Growth in the senior living industry tracks closely with the older adult population in the United States in recent years, according to Argentum, a national trade association serving companies in senior living communities.
In a report titled, Getting to 2025: A Senior Living Roadmap, published in 2016, Argentum wrote that between 2001 and 2014, the number of senior living communities increased 39 percent. “During the same period, the U.S. population aged 85 and older rose 43 percent. As a result of the similar growth rates, the number of senior living communities as a proportion of the senior population has been relatively steady.”
Argentum predicts that the number of senior living establishments will grow to 29,700 facilities, an increase of 21 percent since 2014. The number of seniors 85 years old or older will also increase by 21 percent, Argentum predicted, to more than 7.5 million people, up from 6.2 million in 2014.
While the demand for services is leading to an expansion in the number of senior living facilities there are challenges that insurance providers must solve in today’s healthcare industry.
CNA’s Dmytrow suggests that to solve those challenges, insurance specialists must first understand the industry.
“Understand the litigation environment in the geographic areas you will serve. Know the trends that are happening, both from a risk standpoint and from a standpoint of what new services are being offered by the facilities,” he said. (See, Liability Costs Continue to Rise, below)
The long-term care industry is facing other challenges as well.
“We are experiencing more individuals or seniors who want to age in their homes. As this trend continues, some facilities are expanding to be able to provide additional services, including home care, which differentiates organizations and changes their risk profile,” Dmytrow said.
Declining federal reimbursements from Medicare and Medicaid are also taking a toll on long term care facilities.
“The reimbursement levels definitely aren’t going up but the cost and the overall expenses of running these facilities are,” said Don Tejeski, senior vice president, AmWINS Brokerage of Pennsylvania.
Not all costs have been going up.
“The insurance capacity has been so plentiful in this space and so cheap that it has allowed operators to still operate profitably in a time of cuts to their reimbursement,” said Matthew Wasta, vice president for AmWINS Program Underwriters. “They can cut on services and staff and if something goes wrong, they’ve got [insurance] cheap protection in place to help them.”
But things are changing, Wasta said. “It’s going to become a real issue for operators that don’t run their businesses well,” he said. “They’re looking at Medicare and Medicaid cuts and they’re not going to be able to get that cheap [insurance] protection any longer, especially in the tougher venues. That’s going to be a big change for them.”
“It’s going to be interesting to see how a decrease in federal reimbursements will affect the market,” Dmytrow said.
Another area causing concern for underwriters and facilities is the talent crunch. Attracting, developing, and retaining talent is one of the biggest challenges facing senior living communities today. That challenge will be intensified by the industry’s expected future growth and cuts to federal reimbursement, Dmytrow said. “As the industry continues to grow and change, it is paramount that staff turnover is minimized and new talent is recruited.”
Adequate staffing is critical for proper risk management, noted Clouser. “We look at staffing ratios as well as management objectives to keep and retain talent in the underwriting process,” she said. “This [type of work] is not something that machines can take over. We need people, and well-trained people, plus good compensation to retain the top talent.”
Wasta said while staffing is an expensive line item in operational costs, quality staff can save an organization from being hit with costly lawsuits.
“From my perspective, so much of risk management comes down to staffing levels,” Wasta said. “My advice to agents would be to have their insureds focus on staffing. A common plan of attack from plaintiff lawyers is to argue that they didn’t have enough staff, especially if it’s a for-profit entity.” Making sure that their staffing levels meet or exceed the state averages, at least, is critical.
Another important risk management tip: document properly.
Documentation is another key to preventing a loss, Wasta adds. “When a claim is filed, if it’s not staff, the plaintiff lawyer often goes after holes in the documentation. They can’t prove that they actually did adhere to best practices if it’s not documented.”
When addressing senior living facility operators, agents should offer assistance with disaster preparedness plans. Agents can help their clients develop the plan together with their insurance carrier partners, Chubb’s Clouser said.
One recent requirement is the new federal regulation from Centers for Medicare & Medicaid Services (CMS) that went into effect on Nov. 15, 2017. The rule requires that providers comply with and implement regulations under the Emergency Preparedness Requirements for Medicare and Medicaid Participating Providers.
Clouser says an emergency preparedness plan must have four main elements:
- A comprehensive communication plan.“This is a clear communication guideline to be used to interact with staff, other providers, families, and emergency services during the storm and after the storm,” Clouser said. “A list of all the facility details is key.”
- An evacuation plan. “This plan includes information about transportation, shelter, staffing of the evacuation and how everything’s going to work.”
- Contracts. “This includes all contract information between the facility and thee receiving facility during a disaster. That’s all the vendors to transport, law enforcement, fire, all emergency management services involved in the evacuation.”
- Documentation and Drill. “The plan requires documentation of each of those plans as well as different preparedness drills around the plans.”
Facilities that fail to comply with these new emergency preparedness guidelines face the loss of their accreditation status, Clouser added. “And without accreditation they would not get reimbursed by the government, which could have a huge impact on an organization” as reimbursements often equate to the largest funder for these facilities, she said.
“In today’s world our insureds have to do more with less – comply with regulation, comply with smaller margins, so anything that the agents and brokers can do in partnership with carriers to help develop the plan, evacuation plans, staff training, anything, will go a long way,” she added.
The recent hurricane season was a reminder of the importance of an evacuation plan. But a plan that hasn’t been vetted isn’t much good.
Agents should ask facilities: “Has it been tested? Do all employees know proper protocol? How quickly can you evacuate if necessary?” said Jordan Connelly, senior vice president, Worldwide Facilities LLC.
Hurricanes Harvey and Irma provided a few lessons for Connelly.
She offered one familiar lesson, urging agents to partner with an insurer that knows the long-term care industry.
“There was a glaring difference between insurers who have long standing experience in the long term care space versus the newer entrants to the long-term care market,” she said. “Our carrier partners who are proven in the space sent out hurricane preparedness articles and links to resources to assist us, the broker, in helping our clients.”
Connelly said some insurers provided her with a list of clients who had facilities in the direct path of the storm to ensure that those facilities were well prepared.
“I think we learned from Harvey that many healthcare facilities were grossly under-prepared given the number of facilities that were forced to close due to flooding,” she said. But the timing of Irma helped better prepare Florida facilities, she added. However, extended power outages took a toll on Florida facilities and their residents. “Many lost their lives in Florida due to extended power outages.”
Connelly also advises that knowledge is key when it comes to proper risk management strategies.
“Know the facilities that you partner with and follow the path of impending storms,” she said. “If the facility has a risk manager be sure to contact them as soon as possible to remind them of coverage highlights in their policy form. Remind them of any hurricane preparedness or risk management tools that they may have at their disposal.”
Brokers should always make sure that evacuation expense is included in coverage and offer as much coverage as possible. “This is a critical coverage for any long-term care facility,” she said.
Like most other industries, long-term care facilities have seen softer rates and plenty of availability when it comes to buying property/casualty coverage. But times are changing.
“It’s a unique market,” said CNA’s Dmytrow. “I call it unpredictable.” That means while there is new capacity coming into the market, at the same time, old capacity is exiting the market and/or changing or differentiating their risk strategies, he said.
AmWIN’s Wasta concurs with that assessment.
“We’ve seen some competitors either pull out or pull back in the last 12 months or so,” he said. But there’s always new entrants coming in as well. There’s still plenty of competitive markets available for quality accounts, he adds. “One agent mentioned to me the other day they had no less than 20 quotes on a particular account,” he said. But for the harder venues or those accounts considered less desirable due to claims history, the market has tightened up.
In the tougher “legal” venues, such as New York, Florida, Illinois, California, the states that have the largest number of skilled long-term care facilities, prices are trending up whether it’s a good facility or a bad facility, said AmWINS’s Tejeski.
“It really depends on where you are and what you’re looking at as far as how competitive or how much capacity is available in the market,” Wasta added. “But in general, it’s still a well-funded marketplace with a lot of alternatives.”
Insureds have a choice in today’s P/C insurance market, without a doubt, said Chubb’s Clouser. But the best choice, in her view, is a choice that offers partnering with a carrier that has a broad expertise on a multiline basis. “The best choices are the carriers that have multiline options within long term care,” Clouser said.
Seek out industry specialists, advises Karen K. Jordan, vice president, program management, Affinity Insurance Services, Inc., Aon Affinity/Healthcare Division.
“I think it’s important to work with insurance companies and program administrators that specialize in aging services because risk mitigation techniques differ from standard risks,” she said.
For example, “we have our own risk management program, Aon Quality Institute, designed specifically for senior service accounts.”
Specialists in this segement are the ideal choice, Jordan added. “Work with someone who understands the total cost risk and can help understand the challenges they face. ”
Liability Costs Continue to Rise
The cost of liability continues to increase for the long term care profession, according to the 2017 Long Term Care General Liability and Professional Liability Actuarial Analysis by Aon Risk Consulting and the American Health Care Association (AHCA).
The overall loss rate is expected to increase by 6 percent, with claim frequency driving the increase at an expected 2 percent growth rate and claim severity driving growth by 4 percent.
“Consistent with past year’s reports, we are seeing some pretty strong increases year-over-year in the loss rates,” said Christian Coleianne, associate director and actuary from Aon Global Risk Consulting. “Our 2017 finding is that loss rates are increasing at a 6 percent clip, which is pretty strong growth year-over-year.”
The findings translate to a 2018 forecasted loss rate per bed of some $2,450, he said. “That means if our operator has a 100-bed facility then we believe they should accrue about $245,000 for liability costs in the coming year, which is pretty big number.”
Also, consistent with prior years’ studies is amount varies significantly by state/jurisdiction.
“The top cost states are West Virginia, Florida and Kentucky and they have much higher per bed loss rate than some other states,” Coleianne said.
In West Virginia, the study found the loss rate stood at $8,380, which translates to $838,000 in liability costs projected in 2018 for a 100-bed facility. That compares to the lowest cost state, Massachusetts, which has a loss rate of just $520, which translates to $52,000 on an annual basis for a 100 bed facility.
One data set that is new to the report this year is a comparison of a facility’s CMS rating and its loss rates, he said.
The Centers for Medicare & Medicaid Services, or CMS, offers a five-star rating system for long term care facilities. The best facilities rate at a five star, he said.
We tried to segment our experience historically by that CMS rating and then took a look at the loss rates, frequency and severity for each group,” he explained. “As the five star rating decreased (toward a one star), we expected to see higher loss rates and the lowest loss rates would be for the five star facilities. But what we found was that one star quality rated facilities did indeed have a higher loss rate but there wasn’t much of a difference for facilities rated two through five stars.”
Coleianne said that one driver of one star quality facilities having higher loss rate was frequency of claims. “They had more claims,” he said. However, the severity was similar for all facilities no matter their rating.
Coleianne added that the data is not clear to point to a one star quality rating facility leading to higher claim frequency, but it’s possible that one star rated organizations are more often targeted by plaintiff attorneys.
Approximately 19,300 individual non-zero claims from long term care facilities were aggregated. The 28 providers represented in the national study operate approximately 200,011 long term care beds, consisting of skilled nursing facility beds and a number of independent living, assisted living, home health care and rehabilitation beds. They represent approximately 16 percent of the beds in the United States.
Active Shooter Preparedness
One area of emerging risk for many industry, including the long term care or senior living market, is active shooter risk.
“An active shooter event is something that no one wants to imagine happening in a senior living community, but the reality is that all places where people congregate, including senior living communities, are vulnerable,” said John Atkinson, managing partner, Senior Living practice, Willis Towers Watson. “This vulnerability calls for an increased need for preparedness,” he added.
In partnership with Sorensen, Wilder and Associates, Willis Towers Watson developed the Active Shooter/Armed Intruder Readiness Program. The program is designed to help senior living communities plan for, respond to and recover from active shooter events. Organizations can access the material for free online and customize it for their own use.
The materials include:
• Critical action steps training video
• Sample policy and procedure for active shooter/armed intruder
• Company and community readiness plan and checklist
• Webinar for active shooter awareness in a senior living community.
Atkinson said the program spawned from conversations with members of Argentum, a national trade association serving senior living communities, some of which are clients of WTW.
“They started looking for resources on active shooter training and guidance specific to senior living communities, and there wasn’t any,” he said. “There’s a fair amount of information for school and workplaces but we felt that senior living/long term care has unique exposures. We wanted to make sure that we had tools available to train staff and be prepared.”
The preparedness program was released in late September and has so far been popular, he said. “We’ve been getting a lot of calls about it.” Atkinson said that WTW and its supporting carrier partners are providing the training and video at no cost to the industry.
Willis Towers Watson currently offers management and human capital options to continuing care retirement communities, independent living, assisted living, memory care, skilled nursing and home health care organizations throughout North America.