Nursing Home Coverages Decline as Insurers Pull out of Market

The nursing home market, already in a state of deterioration for several years now, is becoming increasingly barren.

It’s a subject that few insurers are inclined to discuss openly, but the buzz in the industry is that the legal community has found a new weak spot. Faster than one can say “condos” or “malpractice,” it has targeted the area as one ripe with potential for litigation.

A lack of commercial carriers willing to write nursing home coverage currently exists in most states. In states where the carriers are available, they are often too overwhelmed with submissions to get quotes out in a timely fashion. A recent report in The Risk Retention Reporter noted that in some cases, some of the few insurers still left in the field are charging as much as $4,000 to $6,000 per bed.

“The nursing home market has tightened up considerably over the past six to nine months, mainly because of increase in severity and frequency of losses,” said Bill Yurek of Avreco Inc. in Chicago. “The insurance companies that were writing business in the past, the standard market…their loss ratios have really skyrocketed, so they pulled out of certain tough states such as Texas, Florida and Alabama.”

The punitive nature of recent court rulings hasn’t helped the situation. “In Florida, in part it has to do with a Patients’ Bill of Rights statute, which basically has made it easier to win cases against the nursing home facilities,” Yurek said. “Basically it provides that a representative of the patient of the nursing home can bring an action against the nursing home…You don’t really have to prove negligence against the patient itself; you just have to prove it’s a violation of the Patients’ Bill of Rights.”

The discrepancy in opinions often lies in exactly what constitutes abuse. All states have different laws concerning adult care facilities, but some states allow a broader interpretation of word abuse, which provides for a more limited defense that the insured has against allegations of abuse.

In Florida, because there is such a lack of commercial insurance there, Yurek said there has been discussion of reopening the state’s Joint Underwriting Association, where the state actually comes in and provides liability policies for the nursing homes. “Other states are susceptible to an increase in actions against nursing homes,” Yurek continued. “And in those states, Ohio and Illinois, people predict there’s going to be a huge increase in claims against nursing homes in the near future.”

As America continues to age, the worst-case scenario some insurers can see is that laws in each state will be interpreted so widely that a situation where losses are out of control will ensue. This is something, they maintain, that is already happening in some states, but could be avoided if tort reform is passed.

Without statutes that limit liabilities, there can be false claims or exaggerated interpretations of what claims are worth. If such reform were to happen, the perception is that a lot of companies would get back into market. However, Yurek added that the increase in litigation is also due in part to the nursing home facilities themselves.

“Most recently, because of the balanced budget act, their Medicare reimbursement was cut dramatically,” he explained. “Their income has been lowered so that maybe the quality of care has been reduced because they’re not spending the kind of money they need to keep the facility running efficiently. That’s not to say that’s happened in every nursing home, but that has happened in some nursing homes around the country.”

Another problem is a high turnover of personnel in the nursing homes, which can lead to difficulty in obtaining a highly experienced staff knowledgeable in the procedures involved in patient care. Some of the most common claims in nursing homes have to do with wound care, particularly bedsores. Others deal with patients wandering off from the facility as a result of a disease like Alzheimer’s or a lapse in security at the facility.

“If you have personnel that don’t know what to do, or there are no procedures at the nursing home, it causes problems for the patients,” said Yurek, adding that often it all boils down to whether enough money is being put into the facility. “A good correlation might be what the hospitals went through in the 1970s when the malpractice market tightened up severely, and hospitals found themselves without insurance,” he said. “What not all, but the bigger institutions decided to do was form their own captive insurance company or form larger self-insured retention and really buckle down and get into risk management and quality care and loss prevention. Quite a few larger institutions around the country have hugely successful captive insurance programs right now.”

Yurek described the nursing home program that Avreco will be putting out soon. “Ours is risk management-based,” he said. “We’re basically going to try to help nursing homes improve the quality of care within the facility and help them with loss prevention and do that by incentive in the insurance program.” However, there is no quick fix for the situation, and in the meantime, the patients and facilities, as well as the insurers and the agents who depend on those insurers, are losing out.