The insurance market for nursing homes appears to be stabilizing somewhat after two years of volatility stemming from extremely hard market conditions and insurer concerns over pandemic-related exposures. 

Renewed interest in the sector from underwriters is easing the significant capacity constraints and rate increases that plagued the segment throughout 2020 and most of 2021, experts say.

It remains to be seen, though, how severe staffing shortages, potential litigation, changing rules and regulations, and funding shortfalls will affect the market and insurer appetites. 

And the market may continue to be difficult for buyers going forward, they say.

“It’s not an improved environment for nursing homes, it’s just not getting worse,” said Farmington, Connecticut-based Matthew Wasta, vice president of Amwins Program Underwriters, a unit of Amwins Group Inc., who manages the agency’s long-term care facilities program.

The market was already headed toward a serious hardening when the pandemic hit in early 2020, due to more than 10 years of soft pricing and escalating loss cost trends, said Steve Spina, Unionville, Connecticut-based executive vice president of medical and managed care underwriting for The Doctors Co. Specialty Underwriters. 

Nursing homes were thrust into the national spotlight as COVID-19 ran rampant through facilities nationwide, leading to thousands of deaths. A shortage of personal protective equipment and workers exacerbated problems and heightened insurers’ concerns. 

Insurers immediately cut capacity and added exclusions for communicable diseases and anything pandemic-related on renewals and new business, experts say. Accounts were hit with double- to triple-digit rate increases, depending on a facility’s loss history, going as high as 150% in some cases. 

“What ultimately developed was a real acceleration of the hardening of the market,” Mr. Spina said. “From our perspective, the pricing improvement over the last year and a half had to make up for literally 12 or so years of underpricing.”

In the second half of 2021, the market started to settle down slightly as higher pricing and retentions, plus the rollout of COVID-19 vaccines, enticed some new entrants into the sector and allowed existing players to stabilize rates, Mr. Wasta said. Rate increases are now in the single or low double digits and there’s more than a dozen insurers looking at the business, compared with just four or five two years ago, he said.

“Certainly, well-run, high-quality facilities can find good coverage at a fair price. The tougher facilities that are not as well run are still going to struggle and pay quite a bit and retain a lot of their own risk in order to get covered,” he said. 

Mr. Spina said the industry doesn’t yet feel comfortable that the market is back in the black and that rates are at a level to fund the risks being taken on. “By the same token, there has been a resurgence after these increases (in) competition and some price increases have moderated,” he said. “Our estimates on price change in 2022 are much more manageable and reasonable.”

Pandemic realities

The expected onslaught of COVID-19-related liability claims against nursing homes and litigation hasn’t yet materialized. Experts say that is due in part to federal and state immunity laws protecting health care facilities from lawsuits over illnesses or deaths directly related to COVID-19, except in cases of negligence or willful misconduct. 

According to The Center for Medicare Advocacy, a nonprofit health care law organization, 38 states had either issued executive orders or passed immunity legislation as of June 1, 2021, though some of these state laws are being challenged.

Janice Merrill, an Orlando, Florida-based shareholder with law firm Marshall Dennehey Warner Coleman & Goggin P.C., who defends long-term care facilities in Florida, said she’s only litigated three COVID-19 cases to date. 

“The long and the short of it is we haven’t seen as many claims as we thought we would,” she said.

Mr. Wasta believes claims activity has been suppressed by nationwide court closures and visitor restrictions, and expects a wave of litigation is coming. Coverage disputes related to secondary incidents that occurred after a resident contracted the virus are also expected.

“Where the court settles out on actual COVID claims is yet to be seen,” he said.

Reputational harm and a worsening staffing shortage due to pandemic burnout, illness and vaccine mandates could also lead to claims, experts say. According to a November report from the American Healthcare Association and National Center for Assisted Living, the long-term care industry is currently suffering from “the worst labor crisis and job loss than any other health sector.” 

“Those (facilities) that are places where people want to work, that provide quality care, that treat their employees well, that have good staffing ratios, have far better outcomes than those that don’t,” Mr. Wasta said.

CNA Financial Corp., one of the top writers of nursing homes in the United States, has experienced a significant number of claims and is taking a “very aggressive” approach to lawsuits, said Blaine Thomas, St. Paul, Minnesota-based vice president and industry leader for aging services at the insurer.

“We’re going to fight tooth and nail because I don’t want to open the door to allowing the plaintiffs bar another reason to pick on nursing homes. There won’t be any easy settlements,” he said.

Navigating challenges

Looking ahead, the insurance market for nursing homes could still be difficult, because of “pervasive” trends such as societal distrust in institutions, litigation funding and nuclear verdicts, experts say. 

“Even if the pandemic disappeared tomorrow, most of what you see in the marketplace today would persist because it was addressing claims trends and marketplace dynamics that were pre-existing,” Mr. Thomas said.

Mr. Wasta said the nursing home industry will always be high risk because it serves a fragile population. Stretched budgets and staffing shortages can create more exposure, so strong facility processes and procedures are essential to keeping residents safe, lowering insurance costs, and ensuring a facility is defensible when a situation arises, he said.

Mandates, labor issues loom

On Jan. 13, the U.S. Supreme Court greenlighted the Biden administration’s COVID-19 vaccine mandate for workers of federally funded health care entities. Facilities that do not comply with the mandate will be subject to enforcement actions, including financial penalties, by the Centers for Medicare & Medicaid Services. 

American Health Care Association and National Center for Assisted Living President and CEO Mark Parkinson said in a statement that the association is concerned the court’s ruling “will be devastating to an already decimated long-term care workforce.” 

AHCA/NCAL, which represents more than 14,000 nursing homes and assisted living communities across the country, reported in November that nursing home industry employment levels had dropped by 14%, or 221,000 jobs, since the pandemic began. 

The association said that while 83% of nursing home staff are fully vaccinated, “rampant misinformation has sowed doubt and concern among many on the frontlines.”

“When we are in the midst of another COVID surge, caregivers in vaccine-hesitant communities may walk off the job because of this policy, further threatening access to care for thousands of our nation’s seniors,” Mr. Parkinson said. 

Steve Spina, Unionville, Connecticut-based executive vice president of medical and managed care underwriting for The Doctors Co. Specialty Underwriters, expects the ruling will hurt nursing home staffing, as well as create more financial and liability risk for the struggling industry.

“From a staffing perspective, they’re already having a hard time keeping people or getting people,” he said. “Many people just don’t want to comply with the mandate, so they’re going to move to other industries and do other things.”