In 1992, a group of 8 nursing homes created a self-insured group Trust for the purpose of providing statutory workers compensation benefits for its members. Workers Compensation pays for lost time and medical expenses associated with a work-related injury. While nursing homes and related senior communities don't have the same injury risks as manufacturing companies, they actually have high claim experience due to claims and risk associated with lifting and positioning residents.
In the 90's, conventional insurance policies and the default option State Insurance Fund had become high cost and low service options. Many organizations were looking to take more control by self-insuring this mandatory program. Unfortunately, unless you were a very large organization, self-funding was generally considered to be too risky and cost prohibitive. Thus the advent of joint-venture Trusts where several organizations joined forces to pool their premiums, risks and costs.
In 1994, Kirkhaven joined the Long Term Care Risk Management Group (LTCRMG), which had increased from the original 8 members to now 15 members. Members included both not-for-profit and for-profit nursing homes, assisted living and retirement communities in the Rochester and Buffalo area. Potential members were screened and had to meet certain minimum financial, loss control and claims experience requirements.
In short, the Trust was structured to allow all the member organizations to share in the routine overhead costs associated with a program like this while self-insuring their workers compensation risk. These include:
- Program Management
- Claims Administration
- Loss Control Services
- Auditing & Actuarial Services
- Reinsurance Premiums
Each organization pays into the Trust based on a standard formula applied to their total payroll exposure modified by a organization-specific historical claims experience factor. However, your ultimate program cost is your actual claims experience for your organization plus your pro-rata share of the non-loss administrative costs. To help mitigate the exposure for large losses, the Trust includes a large loss sharing formula among all members and also purchases reinsurance to cover very large claims. Every year an accounting of each members premiums paid minus the total cost of claims paid, reserves established and pro-rata overhead costs results in either a refund or additional assessment to continually balance your ledger until all claims in that year are ultimately closed.
The benefit of these self-insured Trusts is that you could control the service providers and ensure you are getting the service you desire or fire them and hire someone else. There are no insurance company profits built into the costs and the investment income earned by the claim reserves inures back to the Trust and the members to help offset costs. You still need to manage your risk and control claim costs as best as possible, but the structure of a self-insured Trust simply sets up better to control and manage both claims and cost.
While it is not possible to accurately know what the alternate insurance market rates might have been in future years to enable us to compare historical costs and savings, there is no doubt that the Trust saved us significant dollars over the early years. In 2000, we added Valley Manor to the Trust, which had now grown to over 30 members.
Within the past several years, the federal workers compensation program has undergone significant changes, scrutiny and regulatory reform. Additionally, many self-insured Trusts have gone bankrupt or terminated leaving unfunded liabilities in the hands of the State. In turn, the Workers Comp Board of the State has levied higher assessments and more stringent regulatory requirements on remaining self-insured Trusts to recapture losses and minimize risk for future losses. This action has made it more difficult for Trusts like the LTCRMG to operate and compete with other workers compensation insurance programs.
Within the past few years, the challenging economy and tougher Trust restrictions has resulted in nearly half of the LTCRMG members terminating their participation in the Trust. Additionally, both current and former members have fallen behind on their payment obligations resulting in higher accounts receivables and risk of bad debts. Six former members have either gone bankrupt or left the group with bad debts totaling 2.2 million dollars, resulting in legal costs to attempt to collect and/or reallocation of the bad debt cost to the other members.
As the once solid core of our innovative Trust begins to unravel, the handwriting is on the wall. The Trust must be dissolved. What was once a viable solution to a problem has now been faced with a changing scenario that questions the on-going value of this Trust as structured. Our goal now is to manage a responsible and organized exodus that also includes a new direction for how we will provide workers compensation benefits.
The tough reality is that no matter where we choose to go from here, none of the LTCRMG members can "run" from the cost or claims still in the works from all previous years. We can close and lock the "barn door", but the "cows" that have already left are still all of our responsibility. The board of directors of the LTCRMG, which is comprised of the CEO or CFO of each member, is taking on the responsibility of working with our legal advisers and program administrators to enable us a "soft landing" with the least amount of cost and risk.
From my perspective, the LTCRMG was an excellent program in its time, but has now become too costly and risky to continue as a viable option. Sadly, it is time to move on to something else and our challenge is to mitigate the transition cost and find the next new solution for today's workers compensation environment.
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