A Report on the Actuarial, Marketing, and Legal Analyses of the CLASS Program. Actuarial Modeling

10/14/2011

The Office of the Assistant Secretary for Planning and Evaluation (ASPE) in HHS contracted Actuarial Research Corporation and Avalere Health to independently develop financial models for the CLASS Program. Both models can determine premiums and project financial results of various CLAS plan designs. Both models are capable of estimating the impact of adverse selection on the premiums and program results. This impact is made a function of the expected enrollment rate of all the workers in the workplace. The higher the enrollment rate, the lesser in the adverse selection effect and vice versa. Each model uses a different source of population data to estimate prevalence, incidence and continuance rates of the use of long-term care services. Entry age premiums are determined by equaling the present value of premiums with the present value of benefits and expenses over the expected lifetime of the enrollees. Program financial results are then derived from projections of the total premiums, investment returns, benefits and expenses. The two models produced consistent and similar results.

A technical expert panel comprised of economists and actuaries was assembled in September, 2010 to provide inputs and comments to the model construction. Another panel convened in June, 2011 to discuss model assumptions and alternative CLASS plan designs. These meetings, together with the results from the models, have been helpful in formulating the direction of the CLASS Office regarding plan designs.

Subsequent to the expert panel meetings, the HHS actuaries and actuaries from the Social Security Administration met in late June, 2011 to review plan design alternatives. This group agreed that certain plans, designed to mitigate the adverse selection risk (Phased Enrollment, for example), can be actuarially sound and attractive to the consumers.

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