Long Term Care: Will the Crisis Ever End? Alternative Solutions

1. November 12, 2003 Long Term Care: Will the Crisis Ever End?Alternative Solutions

2. The Perfect Storm • LTC Industry Changes • Legal Environment • Societal • Governmental • Insurance Industry

3. Recent AwardsLitigation Continues and Migrates • Sexual Offense TX $65MM • Treatment FL $20MM • Medication AL $5MM • Supervision GA $3.3MM • Treatment IL $900K • Treatment TX $300MM+ • Treatment AR $72MM • Treatment MS $7MM • ETC.

4. Setting Expectations Quote from LTC Website “(residents) need credible and qualified health care alternatives to assure an independent lifestyle and the highest possible quality of care… All provided in an environment that is calming and caring.”

5. Setting Expectations Quote from LTC Website “(residents) need credible and qualified health care alternatives to assure an independent lifestyle and the highest possible quality of care… All provided in an environment that is calming and caring.”

6. Setting Expectations Quote from LTC Website “Assisting our residents in regaining mobility, their ability to communicate, their independence... is a daily occurrence”

7. Insurance Market Update • Commercial Insurers: • Remain concerned about senior housing and health care liability exposure • Geographically driven • Differentiation between nursing home and senior housing • Unlikely to become competitive in the foreseeable future • More for less • Supply / demand • Finite Programs

8. Acuity Changes ALF Effect Risk Management Family Expectations Roots of the Crisis Role of Long Term Care Industry

9. Resident Rights Facility on Trial 60% Success Rate Inflaming Juries Frightening Insurers Roots of the Crisis Role of Legal Industry

10. Family Geographics 65% of Residents Never Have a Personal Visitor Abdication of Caregiver Role Society Demographics Lottery Mentality Roots of the Crisis Role of Society

11. Regulation Survey Data Reimbursement Avg. Medicaid payment for skilled nursing care: $ 4.45/hour Dog Walker? Baby Sitter? Minimum Wage $5.15 Roots of the Crisis Role of Federal/State Government

12. Failure to Recognize LTC Industry Changes Soft Market Occurrence Policies Deductibles Risk Management? Claim Management Roots of the Crisis Role of Insurance Industry

13. Insurance Industry Evacuates/Premiums Aggressive Plaintiffs LTC Bankruptcies “Faux” Insurance Medicaid Budget Crises Insurance “Schemes” Attn: Risk Management Some Bad Providers Out New Products/Services Review of LTC Model Quality of Care Tort Reform Focused Insurers Result Good Bad

14. Recommendations For Long Term Care Clients • Understand the Insurance Underwriter’s View Point • Fully Understand Loss Trends/Projections of the Organization • Tell a Good Risk Management Story • Be Prepared - Plan B

15. Is a Captive the Solution? • Are you willing to run an insurance company? • Invest: • Time • Money (capital) • Take risk • Professionally manage risk and claims management • Can you satisfy those that want you to have commercial insurance? • Lenders/Bondholders/State/Others

16. Case StudyRegional Nursing Home Chain - Single Parent • Commercial insurance premium $900,000 to over $10,000,000 • Leverage Points • Reimbursement • Risk Management • Coverages beyond PL/GL • Leverage collateral requirements

17. Case StudyRisk Retention Group • Non-Profits, bare, high premiums, low losses • Barriers • Group mentality and leadership • Reimbursement • Necessity to interact/satisfy state regulators • Legalities • Reinsurance • Fronting • Department of insurance • Tort Reform • Lobbyists

18. Case StudyRent-a-Captives • Licensure • Front • Don’t just run around bare • Reimbursement • Baby Steps • Strategic growth and plan • Faux Insurance

19. The Future • Continuing Focus on Alternative Risk Vehicles • Need for Actuarial Analysis to Support • Pressure from State’s to Require Minimum Levels of Insurance • Tort Reform • Return of Affordable Commercial Insurance?