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Senior Housing > Blog > 2014 > July

HISIP – HEALTHCARE INDUSTRY SELF INSURANCE PROGRAM A GOOD IDEA TURNED INTO A NIGHTMARE

CRM (Compensation Risk Managers) entered the workman’s’ compensation business in 1999 in an effort to help alleviate the shortage of affordable workers’ compensation insurance for California’s sizable health care industry workforce.  They began offering coverage to health care workers through a new program call Healthcare Industry Self Insurance Program (HISIP)

HISIP was designed to serve employees of nursing homes, assisted living, hospitals and all other related healthcare facilities and institutions throughout California.  CRM expected HISIP to save employers as much as 20-40% percent compared with current state fund rates.  With the rising costs of both workers’ compensation insurance and health care greatly contributing to California’s financial problems, CRM hoped that their new HISIP program would impact the bottom line for each of these industries.  HISIP was created with the participation of only two core members who contributed a total of $3,325,028 in written premiums which help launch the program and provide workers’ compensation insurance for 1,087 workers that were collectively employed.  By 2004 CRM reported gross written premiums of $125 million which was a 27% increase from the previous year.

SO WHAT WENT WRONG

Recession, management, shortage of funds, slow payment of claims, loss of members, and Law suits all contributed to the failure of the program.  The group’s membership tumbled in recent years and a significant amount of the deficits is tied to former members.  The Office of Self Insurance Plans (SSIP) reported the group had dwindled to just 34 active members  Attorneys for the Healthcare industry Self Insurance Program (HISIP) notified current and former members of the workers’ comp self- insured group (SIG) that they had a bill to pay to bring the SIG into full compliance with state financial standards.   The letters were a part of a plan to close a deficit that is reported to be in the $25miillion to $28 million range.  Former members were offered a payment plan if they rejoined otherwise the whole amount was due.  The carrot was not attractive enough to bring more members into the fold and more law suits followed.  CRM of California exited the self-insured group administration market and SIS took over management of the group in the fall of 2010.

In December of 2013 the Self-Insurers’ Security Fund filed a lawsuit in Orange County Superior Court seeking to recover liabilities the Security Fund was required to assume when the Healthcare Industry Self Insurance Program of California (HISIP) was placed in default earlier in 2013. The suit seeked to recover an estimated $39 million from 308 former members of HISIP, who were required to reimburse the Security Fund by statute.  According to the Complaint, HISIP was a non-profit mutual benefit corporation made up of healthcare-related entities in California.  It was authorized to act as a self-insurance group allowing members of HISIP to meet their statutory requirement to secure their workers compensation obligations through membership in the group.  Each member of HISIP agreed, upon joining, to be jointly and severally liable for the compensation liabilities of all other members that arose during its period of membership.  However, not enough members paid such assessments and HISIP went into default.  The Office of Self Insurance Plans (OSIP) within the Department of Industrial Relations (DIR) issued the order declaring HISIP in default and requiring the Security Fund to take over claims- paying responsibility The Security Fund has been paying the compensation claims of HISIP members’ employees since that time.

QUANTUM LEAP IN SENIOR HOUSING INVESTOR MARKET

With 8000 of the Baby Boomer generation reaching 65 every day, the resulting demographic boom has vastly increased the undeniable demand for senior housing. Current operators already in the industry are seeking new acquisitions and new investors are shifting from other investments in their effort to get into the senior housing market.

Investors are seeking Portfolio acquisitions as well as standalone facilities. Although construction in senior housing moderately decreased in the first quarter of this year, the expectation is for investors to meet the increasing demand by developing new healthcare facilities. New institutional equity firms that traditionally have not invested in senior housing are entering the healthcare market now. Even with prices rising for acquisition and construction the demand continues to soar.

There is a greater demand for Assisted Living than for other senior housing facilities. Assisted Living’s expected supply increase and absorption rates outpace those of independent living. There is much more supply and demand for assisted living than for independent living. In the first quarter of this year assisted living had the most construction overall, adding about 9000 units. Expected growth of independent living inventory to be 2000 units for the rest of the year.

The shift from the multi-family market to the Senior Housing market continues to rise to meet the increased demand for healthcare facilities. It is also fired by favorable interest rates and the availability for HUD Senior Housing finance with the Department of Housing and Urban Development. However with the increased demand, interest rates have begun to rise, and investors want to deploy capital as quickly as possible.