Nursing All the Right Answers in the Sunshine State

As the insurance industry, the nursing home industry, trial lawyers, and more look to find common ground in the saga of Florida nursing homes, the thought that the situation will eventually find the right answers does appear on the horizon.

Sandy Elsass, president of Uni-Ter Underwriting Management Corp., a subsidiary of New York-based U.S. RE Cos., recently sat down with Insurance Journal Southeast to discuss the situation and where he sees things headed in 2004. Elsass testified last month at hearings before the Joint Select Committee on Nursing Homes.

Insurance Journal: What is the background on the problem in Florida and what did you discuss at the hearings?

Sandy Elsass: Our concern is that the law in the state of Florida requires a nursing home operator or assisted living operator to buy a liability policy. There is no further description to limit or scope. Therefore, a large segment of the nursing home and assisted living population is buying a ‘finite’ policy. That means they pay $32,500 and buy a $25,000 insurance policy and attach it to each facility. There is no risk transfer, no underwriting on the policy, no risk management, there’s no real defense if you have a claim. The insurance company writes a check for $25,000 and the facilities buy another policy if they want to retain their license. Because of that provision, it makes it harder for us to sell a legitimate risk transfer product because there is no legal motivation for people to buy it. The nursing homes and assisted living facilities that are looking to protect assets, protect their residents and their employees and the public, are buying real insurance policies. The homes that have financing with HUD, Fannie Mae, and some banks, etc. have to buy real insurance policies. We’ve said that we don’t think it is necessarily responsible for a nursing home or assisted living facility to buy a finite policy because there is no protection for the residents, the employees or the public. But there are a lot of competing forces here. The nursing homes have lost a big chunk of their reimbursements and the insurance prices are expensive. They’re up against it in terms of what is worse. Losing your assets by going broke because you’re buying insurance or going broke because you can’t afford to buy insurance and get sued?

IJ: Is there a typical claim that hits these nursing homes in Florida and what has been the impact of nursing home problems in other states?

Elsass: The trial lawyers love to sue the nursing homes that carry $1 million in coverage for all the obvious reasons. The nursing homes not carrying high limits are finding that the suits have gone down. The law firms have stated it costs $250,000 to go to trial. The practical reality is that nursing homes are not being sued if they don’t have enough insurance to make the trial lawyers happy. There is a point to be made there. The state is not going to eliminate the finite policy when they’re reducing the reimbursements. The state doesn’t want to get in the position of increasing the cost to the homes while decreasing the reimbursement. Florida has a very strong patient rights bill that means you can be sued for just about anything. It is very problematic and what you have are several competing forces. Trial lawyers would love to see everybody buy a whole bunch of insurance, but they know that the tradeoff of wanting everybody to buy a lot of insurance is that there will be a cap on non-economic damages. The question then is where is the limit on the cap? They (trial lawyers) are not interested in a cap that falls below $1 million. Some states have enacted tort reform and once you have non-economic damages capped, you find that the cost of insurance goes down and there are fewer suits, particularly if the caps are $500,000 or less. Alabama, Mississippi and other southern states have been problematic. I believe Florida is one of the ‘bell-weather’ states that others are looking at to see what happens and was the first of its kind in the U.S. to set up the long-term care risk retention group. Florida remains a very litigious place because the patients rights bill is so powerful. The recent bill (SB 1202) adopted two years ago put a real dent in the frivolous suits’ issue. It is my opinion and I believe most of the legislators I’ve spoken to, that 1202 is working and that the frivolous suits have been reduced dramatically and the general suits overall are down. What we don’t know is it because of the number of homes that are buying low-limit policies, therefore they’re not being sued because there’s nothing to get or is it that 1202 is being very effective? I think it is a combination of the two.

IJ: Give me a little background on the risk retention group that was formed to address the nursing home issue in Florida.

Elsass: A $6 million surplus note was loaned from the Agency for Healthcare Administration (AHCA) to provide insurance capacity to the long-term care industry because the commercial marketplace withdrew. There were a few remaining players, but at exorbitant rates, and so the idea was that the LTCRRG would be a place to buy affordable coverage. It was a $6 million surplus note that is to be repaid over time as the business grows and as more capital comes into the risk retention group, as that capital is adequate against the premiums that are written to provide capital and surplus protection, then the money gets repaid to the state agency. Eventually, the shareholders who are the insureds and you have to be both (insured to be a shareholder and a shareholder to be an insured), then those people would own the company after the $6 million is repaid to the state. Under a long-term contract, Uni-Ter Underwriting Management Corp is the turnkey virtual insurance company manager providing all of the services except for audit, actuarial, and investment management. The LTCRRG has no operational employees, there is a board of directors of six people who are the officers and directors and they are an actively involved group of nursing home and assisted living owner-operators who are learning all about running an insurance company on behalf of the long-term care industry.

IJ: How has the nursing home problem impacted the insurance industry?

Elsass: It was the beginning of a deluge of new risk retention group creations, including ourselves. We just put together 13 states out west called Lewis & Clark LTCRRG and we’re in the midst of putting five more together as we speak in different parts of the country.

IJ: Would you say that the insurance industry is doing all it can to make the situation work in Florida?

Elsass: The commercial insurance industry has not come back into Florida even though SB 1202 appears to be working. A major disservice was done to the long-term care industry with the likes of St. Paul leaving the business, the demise of Reliance, etc. St. Paul basically exited the industry by leading with its checkbook. Because of that, the trial lawyers made a lot of money on suing. They’re all flying around on their private jets on the backs of the nursing homes While there are incidents of poor care in the nursing homes and assisted living facilities, there are a tremendous number of professionals who are very dedicated and smart individuals doing the right thing for an elderly population or those who are disadvantaged by either accident or unfortunate circumstances.

IJ: Do you think nursing home administrators just like physicians have to be more concerned about being sued then concentrating on quality care for their patients because there is a lawyer around the corner?

Elsass: Unfortunately there is the black cloud that hangs over everybody’s head, but I don’t think they’re making decisions in lieu of providing good care. They’re providing good care for two reasons. One, that is their mission, but also there is the danger of the lawsuit hanging around the corner. In our experience, we have some 260 facilities in our risk retention group in Florida and we have seen three things that make the RRG work there. One is very good risk management protocols that we implement with our risk management company. Second is very aggressive claims handling where we are very fast on the scene where there is an incident that could become a claim and involving the families before the lawyers get the case. Thirdly, and most effectively why the RRG in Florida will be a stable facility with affordable coverage for years to come, is that the owner-operators who are passionate about their mission create a culture of care within their facilities. When there is an accident in those facilities, the first thought is not to sue the owner-operator the first thought is can we fix the problem without involving lawyers. Communication is very important and we work very hard on fostering communication between ourselves, our risk management department, the director of nursing, the administrator, the risk manager of the facility, and the families of their residents.

IJ: What do you predict a year from now in the Florida nursing home and assisted living situation?

Elsass: One of the things that impressed me at the hearings and we were there for three hours is that legislators are very serious about doing the right thing. There is a real desire despite all the competing interests to make things better. Our direct mission as the Florida LTCRRG is to make affordable risk transfer coverage available with good risk management and services so that people who buy insurance, will trust the RRG as a place where they will get the most value for the money. I think a year from now we’ll find the RRG will be doing very well. We are a market of availability and are conscious of what the issues are. One thing I told the Senate Select Committee was that I applaud them on their vision to create the risk retention group as an alternative to a JUA or state run program. The vision of this risk retention group promotes capitalism and private risk sharing as well as the capital infusion by the owner operators. The hearings have been a very good learning experience and the interchange is healthy. Reform in a democracy is slow going.

Editor’s note: For more on the Florida nursing home situation, see a commentary on Page 33 from Barbara Hengstebeck, president of Coalition to Protect America’s Elders.

Topics Lawsuits Florida Market Risk Management