A Report on the Actuarial, Marketing, and Legal Analyses of the CLASS Program. Appendix Pe: Presentation Entitled "Alternative Approaches to CLASS Benefit Design: The Class Partnership"

10/14/2011

Alternative Approaches to CLASS Benefit Design:
The CLASS Partnership

William Marton
Office of the Assistant Secretary for Planning and Evaluation
June 22, 2011


CLASS Independence Benefit Plan

Flow Chart: CLASS Independence Benefit Plan leads to Plan 1, Plan 2 and Plan 3.

CLASS Independence Benefit Plan
October 1, 2012

Flow Chart: CLASS Independence Benefit Plan leads to Plan 1, Plan 2 (highlighted) and Plan 3.

CLASS Independence Benefit Plan

Flow Chart: CLASS Independence Benefit Plan leads to Plan 1, Plan 2: Family of Options, and Plan 3. Plan 2 leads to Option 1, Option 2 and Option 3.

Family of Options

  • A set of benefit plans that are marketed as one plan with multiple options
  • One of the options must follow the CLASS statute fairly closely (e.g., the Modified CLASS Plan)
  • The structure of the other options can vary more extensively, but still must maintain certain core features of the CLASS statute such as similar requirements for enrollment; a primary benefit that is cash; a five year vesting period; and no underwriting except for age
  • The options are designed to appeal to different market segments of the population that (hopefully) vary by the risk of adverse selection
  • The family of options has to be actuarially sound, either at the individual option level or in their entirety

CLASS Independence Benefit Plan

Flow Chart: CLASS Independence Benefit Plan leads to Plan 1, Plan 2: CLASS Partnership, and Plan 3. Plan 2 leads to Basic, Comprehensive and Short Term.

CLASS Partnership

Basic: Incorporates the major features of the CLASS statute (e.g., a primary benefit that is cash; no limit on duration; a vesting period; and no underwriting except for age), but changes key components to mitigate, although not likely eliminate, adverse selection.

Comprehensive: Provides much more comprehensive coverage (e.g., a three-year $150 daily benefit) designed to appeal to people who want to insure against future risk of long-term care that they will likely face at very old ages. Structure of the benefit reduces the likelihood of adverse selection.

Short Term: Provides very short-term (e.g., one year), high dollar coverage to persons with high functional needs. The premiums for this product should be substantially lower than those for the Basic and Comprehensive options, with the goal of appealing to persons who want some level of coverage but cannot afford something more comprehensive. Similar benefit structure as for the Comprehensive Option

Whyis this plan called the “CLASS Partnership”?

The structure of the benefit is designed to provide an opportunity for private insurers to develop products that would naturally “wrap around” and supplement the underlying core benefit. (Note: The supplement would be underwritten.)

Specifically, the daily benefit amount increases the longer the policy is held, rising from a nominal amount after the vesting period to an amount of coverage similar to what is commonly purchased from long-term care insurers.

However, unlike the CLASS Basic Plan, the duration of coverage for the Comprehensive and Short Term options is limited.

Figure 1. Changes in Daily Benefit Amount for the Comprehensive Option

Area Chart.

Summary of CLASS Partnership Plan
Program Features CLASS
  Benefit in  
Statute
CLASS Partnership Plan
Basic
  (Modified)  
  Comprehensive     Short Term  
Enrollment Requirements:        
   Age 18+ Yes Yes Yes Yes
   Taxable Wages/Income Yes Yes Yes Yes
   Actively Employed Yes Yes Yes Yes
   Not in Institution Yes Yes Yes Yes
Coverage Benefits:        
   Primary Benefit Cash Cash Cash Cash
   Daily Benefit Amount (DBA) $50 (Average) $50 (Average)   Varies - Up to $1502     Varies - Up to $2002  
   Unit of Payment Daily or Weekly   Daily or Weekly   TBD TBD
   Minimum Duration in Years NA - Lifetime NA - Lifetime 3 Years 1 Year
   Total Value TBD TBD $164,250 $73,000
   Inflation Protection CPI-U CPI (2.8%) Variable4 Variable4
   Advocacy Services Yes Yes TBD TBD
   Advice and Asst. Counseling Yes Yes TBD TBD
Eligibility for Benefits:        
   5 Year Vesting Period Yes Yes Yes Yes
   Work Req. Over Vesting Period   At Least 3 Years     5 Years (or 40 Qs)5     5 Years (or 40 Qs)5     5 Years (or 40 Qs)5  
   Earnings Req. Over Vesting Period   $1,120/Year $12,000/Year $12,000/Year $12,000/Year
   24 Months of Prior Prem. Payment Yes Yes Yes Yes
   Minimum Benefit Trigger 2 or 3 of 6 ADLs6 TBD HIPAA - 2+ ADLs6 HIPAA - 3+ ADLs6
   Tiered Benefit Yes Yes No No
   Elimination Period in Days 0 0 0 0
   Presumptive Eligibility Yes - if in Inst.7 Yes - if in Inst.7 TBD TBD
   Administrative Expenses 3% 3% TBD TBD
Monthly Premium:        
   Underwritten (Other Than Age) No No No No
   Indexed to Inflation No Yes (2.8%) Yes (3%) Yes (3%)
   Low Income Premium Yes Yes No No
   Full Time Student Premium Yes Yes No No
   Waiver of Premium TBD TBD TBD TBD
   Level Premium After Age 658 After Age 658 After Age 759 After Age 759
   Return of Premium TBD TBD Yes10 Yes10

 

Indexed Monthly Premiums for CLASS Partnership: Comprehensive Option (Scenario II - Expected)
  Age     Core1     Supplement2     Total  
35 $109 $23 $132
40 $121 $32 $153
45 $138 $44 $182
50 $153 $73 $226
55 $162 $103 $265
60 $166 $144 $309
65 $168 $203 $371
Average   $148 $99  
  1. Full waiver of premium, 2% participation
  2. 60% loss ratio, SOA experience data

 

Comparison of Comprehensive Level Premiums Against Private LTC Insurance Plans
  Age     Comprehensive  
(Total)
MedAmer.
  Simplicity  
II1
  Prudential  
LTC32
  United of  
Omaha
AS Gold3
NW
  QCare4  
  FLTCIP5  
35 $199 $238 $192 $182 $232 $74
40 $224 $270 $202 $193 $237 $87
45 $258 $308 $227 $201 $256 $104
50 $308 $356 $256 $214 $276 $125
55 $351 $415 $290 $234 $303 $153
60 $398 $498 $330 $280 $349 $187
65 $464 $621 $421 $402 $433 $238
  1. $4,500/month, $200,000 maximum (3.7 years), 30 day elimination period, 5% ACI, all cash
  2. $150/day, three year, 30 day elimination period, 4% ACI, 40% HC in cash alternative
  3. $4,500/month, three year, 0 day elimination period, 4% ACI, 40% HC in cash alternative
  4. $4,500/month, three year, 6 week elimination period, 4% ACI, service reimbursement
  5. $150/day, three year, 90 day elimination period, 4% ACI, service reimbursement

 

Indexed Monthly Premiums for CLASS Partnership: Short Term Option (Scenario II - Expected)
  Age     Core1     Supplement2     Total  
35 $72 $11 $83
40 $81 $15 $96
45 $92 $22 $114
50 $101 $37 $138
55 $106 $52 $158
60 $105 $75 $180
65 $101 $108 $208
Average   $96 $51  
  1. Full waiver of premium, 2% participation
  2. 60% loss ratio, SOA experience data

View full report

Preview
Download

"index.pdf" (pdf, 350.5Kb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®

View full report

Preview
Download

"appA.pdf" (pdf, 150.08Kb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®

View full report

Preview
Download

"appB.pdf" (pdf, 548.14Kb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®

View full report

Preview
Download

"appC.pdf" (pdf, 150.56Kb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®

View full report

Preview
Download

"appD.pdf" (pdf, 318.45Kb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®

View full report

Preview
Download

"appE.pdf" (pdf, 319.19Kb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®

View full report

Preview
Download

"appF.pdf" (pdf, 155.03Kb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®

View full report

Preview
Download

"appG.pdf" (pdf, 181.05Kb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®

View full report

Preview
Download

"appGa.pdf" (pdf, 151.02Kb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®

View full report

Preview
Download

"appGb.pdf" (pdf, 123.12Kb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®

View full report

Preview
Download

"appH.pdf" (pdf, 256.35Kb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®

View full report

Preview
Download

"appI.pdf" (pdf, 358.34Kb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®

View full report

Preview
Download

"appJ.pdf" (pdf, 1.21Mb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®

View full report

Preview
Download

"appJa.pdf" (pdf, 396.06Kb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®

View full report

Preview
Download

"appJb.pdf" (pdf, 313.17Kb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®

View full report

Preview
Download

"appJc.pdf" (pdf, 252.71Kb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®

View full report

Preview
Download

"appJd.pdf" (pdf, 261.97Kb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®

View full report

Preview
Download

"appK.pdf" (pdf, 186.22Kb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®

View full report

Preview
Download

"appL.pdf" (pdf, 788.88Kb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®

View full report

Preview
Download

"appM.pdf" (pdf, 249.45Kb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®

View full report

Preview
Download

"appN.pdf" (pdf, 7.72Mb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®

View full report

Preview
Download

"appNa.pdf" (pdf, 208.04Kb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®

View full report

Preview
Download

"appNb.pdf" (pdf, 6.96Mb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®

View full report

Preview
Download

"appNc.pdf" (pdf, 622.02Kb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®

View full report

Preview
Download

"appNd.pdf" (pdf, 211.36Kb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®

View full report

Preview
Download

"appO.pdf" (pdf, 2.01Mb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®

View full report

Preview
Download

"appP.pdf" (pdf, 9.15Mb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®

View full report

Preview
Download

"appPa.pdf" (pdf, 233.71Kb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®

View full report

Preview
Download

"appPb.pdf" (pdf, 253Kb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®

View full report

Preview
Download

"appPc.pdf" (pdf, 546.97Kb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®

View full report

Preview
Download

"appPd.pdf" (pdf, 505.4Kb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®

View full report

Preview
Download

"appPe.pdf" (pdf, 462.21Kb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®

View full report

Preview
Download

"appQ.pdf" (pdf, 285.57Kb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®

View full report

Preview
Download

"appR.pdf" (pdf, 797.76Kb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®