Are ALF premium hikes fair? Increases may be based more on fear than fact. (Insurance).

ASSISTED LIVING PROVIDERS MAY SEE THEMSELVES AS A VERY different kettle of fish from nursing home operators, but when it comes to insurance coverage, underwriters appear to be tossing them into the same bouillabaisse. Two Florida trial lawyers who have sued both nursing homes and assisted living communities say that neither the number of cases against ALFs nor the size of the verdicts justifies the recent quadrupling and quintupling of premiums.

Frank Petosa, an attorney with Boca Raton, Fla.-based Seiden, Alder, Rothman, Petosa & Matthewman, PA., says that "Having paid out liability dollars that exceeded premiums collected in the nursing home area, carriers feel they will have the same exposure in assisted living and CCRCs, so they have significantly increased premiums or are no longer offering coverage."

In a South Florida Sun-Sentinel article titled "Florida Assisted-Living Facilities Hard-Hit by Liability Fears," Jim Wilkes-whose Tampa-based law firm Wilkes & McHugh has won several large verdicts against nursing homes-said, "The insurance companies appear to be capitalizing on hysteria.... I would like to see some Validity for the prices."

The problem is not limited to Florida. Alterra President Steven L. Vick recently announced that the Wisconsin-based assisted living chain is "asking certain of our lenders and lessors to allow us to temporarily suspend debt service and lease payments," because the company's "cash flow has been hurt by higher costs for labor, utilities and liability insurance, and lower occupancy levels."

Michael Ferreira, vice president of Bratrud Middleton Insurance Brokers in Tacoma, Wash., says California is experiencing runaway rates and that one of his assisted living clients "pays 10 times the insurance rates for his Texas facilities as for his Washington communities."

Insurance is based on predictability, Ferreira explains, "and when future losses are difficult to predict, insurance capacity goes away. That's what you have going on right now. Insurers can't predict where litigation is going, and are therefore unable to price. There's a fear that the plaintiffs' bar is targeting assisted living."

Sam Adler is a freelance writer based in New York City.

Bobbie Edelman, assistant vice president of CNA Global Specialty Markets Medical Division, one of the major writers of assisted living coverage, says that while "an underwriter might handle both assisted living and skilled coverage, he or she does not lump them together for the purpose of setting premiums, and in fact the rates for each sector are significantly different."

Assisted living stands on its own, says Edelman, adding that if rates have gone up it's because facilities have higher-acuity residents than they did 15 years ago, "not to compensate for skilled facilities' losses. They go up as a result of [the ALF's] own losses and attributes."

In sum, Edelman says higher premiums are a function of "the activities going on within a facility, its past claims experience, and, if it is surveyed by a state agency, we look at the survey and price based on that."

But how well founded are their fears? While rumors swirl of plaintiffs' firms in Florida trying to drum up assisted living business via billboard advertising, Petosa and Wilkes & McHugh spokesman Steve Vancore adamantly deny that they are targeting assisted living facilities. To the contrary, both say they view assisted living as a big improvement over nursing homes and are sympathetic to their plight.

Vancore asserts that the insurance industry is intentionally grouping assisted living with nursing homes to spread the risk around. "Auto insurers can spread risk around a gazillion people," he says. "In Florida, there are only 700 nursing homes, and maybe 350 of them are a problem, so first the insurers spread the risk to not-for-profits and locally owned chains, but that was still not a big enough pool, so they added in ALFs and CCRCs."

Guilt by association?

But one broker, who asked to remain anonymous, says that while insurers may not consciously be making ALFs pay for the sins of the SNFs, "One of the problems with the assisted living arena is getting carriers to differentiate them from nursing homes." As an example, he points to a recent study by Chicago-based insurance broker Aon Corp., warning of projected losses from nursing home coverage in Florida which have been used by many insurance companies to justify raising rates for ALFs.

Also contributing to the problem is reluctance on the part of reinsurance companies to underwrite this class of business. "Insurance companies don't take on all the risk," says Ferreira. "They usually cede, or tender, the risk--especially catastrophic risk, the high six-figure and seven-figure verdicts that have been on the rise in the nursing home arena--to someone else. And right now the availability of reinsurance is scarce. So insurance companies are unable to offload some of their risk and are therefore unwilling to take on assisted living companies."

Small operators feel the pinch

The meteoric rise in Florida's rates has had its greatest impact on the small providers participating in the state's Medicaid waiver program. The program requires participants to obtain an extended congregate care or limited nursing services license and to obtain insurance. In many cases, insurers are dropping these providers or increasing their premiums. The participants, in turn, are dropping their ECC and LNS licenses.

According to the Sun-Sentinel article, Campbell Epes, owner of the 22-bed Xanadu Retirement Residence in Dania Beach, Fla., got an extended congregate care license so he wouldn't have to discharge residents as their acuity increased. His carrier told him the extended license puts him in the same risk pool as a nursing home--raising his premiums from $6,500 to $66,000. Epes dropped his extended license.

Sixty percent of Florida's 2,400 ALFs have fewer than 16 beds and typically are privately run. While a larger facility with affluent residents can absorb an increase in insurance premiums, the smaller ALFs--whose residents often have little money and no family--don't have that option.

Preet Sahi of Sunshine Assisted Living in Coral Springs, Fla, switched carriers when her original insurer raised her rates from $800 to $5,000. She ended up paying the higher rate with another company anyway. "I really want the state to do something," she told the Sun-Sentinel. "My residents are on limited incomes and its going to be a problem."

But if ALFs are providing "advanced care," is it so unreasonable for carriers to charge them accordingly? "The waiver homes are providing a lower level of care than nursing homes," counters Petosa, "and a small, community-based assisted living facility should be evaluated according to different criteria than a national nursing home chain."

Meanwhile, the Florida Health Care Association has warned that insurers' fears of "potential lawsuits" could mean the undoing of the assisted living waiver program. In a press release, the organization said that "some assisted living facilities are being notified that [their carriers are] no longer writing coverage for ALFs with extended congregate care licenses.... The implications of this are very alarming because the state is looking at relying more on ALFs as an alternative to nursing home placement."