A Report on the Actuarial, Marketing, and Legal Analyses of the CLASS Program. Attachment 2: Plan Design Alternatives

10/14/2011

PLAN ALTERNATIVES
Category I: Adverse selection issue not addressed
Design 1
CLASS Basic
2
Modified CLASS
Description This is the plan closest to CLASS specs This plan incorporated the proposed Senate amendments
Benefits $50 daily benefit indexed to CPI every year only after claim and not while active

5 year waiting period

$50 daily benefit indexed to CPI

5 year waiting period

Premium Schedule Level premium Premium indexed to CPI
Price Competitive X X
Benefit Attractive X
Compatible with Private Insurance Not compatible Not compatible
Remark Premium will be unstable because private insurance will be much cheaper

The stable premium will be at a pre-paid plan level

Include higher earning threshold for first 5 years

The stable premium will be at a pre-paid plan level

Note: All alternatives assumed that earnings and re-enrollment issues have been addressed.

 

PLAN ALTERNATIVES
Category I: Adverse selection issue not addressed
Design 3
Short & Fat Option
4
Wellness Option
Description Choice of CLASS Senate or a plan that provides substantial benefits for a short period Choice of CLASS Senate or a plan that provides an incentive to stay out of claim
Benefits $150 daily benefit indexed to CPI (e.g.)

2 year benefit period (e.g.)

5 year waiting period

$150 daily benefit indexed to CPI (e.g.)

If there is no prior claim, 1 year of premium is refunded for every 10 year period (e.g.)

4 year benefit period (e.g.)

5 year waiting period

Premium Schedule Premium indexed to CPI Premium indexed to CPI
Price Competitive X X
Benefit Attractive
Compatible with Private Insurance Compete directly with private insurance but at higher premium Compete directly with private insurance but at higher premium
Remark Does not address disabled workers with < 2+ ADLs Marginal improvement on anti-selection

 

PLAN ALTERNATIVES
Category II: Adverse selection issue somewhat addressed but low product appeal
Design 5
Rising Benefit Option
6
Shadow Benefit
Description Choice of CLASS Senate or a plan that provides minimal benefits during an initial period Lower benefits for the fist 20 years
Benefits $25 initial daily benefit indexed to CPI in years 1-10, $50 indexed for years 11-20, $150 indexed thereafter (e.g.)

4 year benefit period (e.g.)

5 year waiting period

After 20 years, pays $50 indexed to CPI; pays $10 level during the first 20 years (e.g.)

4 year benefit period (e.g.)

5 year waiting period

Sold in units of $50 daily benefit; can buy up to 8 units

Premium Schedule Premium indexed to CPI Premium indexed to CPI
Price Competitive X
Benefit Attractive ✓? X
Compatible with Private Insurance Relying on private insurance to provide meaningful coverage to most workers Opportunity for private insurance to supplement (if limited to 1 to 2 units) but compete directly if up to 8 units
Remark More expensive package than private insurance

Less anti-selection buy uncertain to the exact degree

Less anti-selection but uncertain to the exact degree

More attractive to younger workers who are tougher to convince to enroll

 

PLAN ALTERNATIVES
Category II: Adverse selection issue somewhat addressed but low product appeal
Design 7
Waiting Period Option
8
Life Cycle Option
Description Choice of CLASS Senate or a plan that has a 15 year waiting period (e.g.) Choice of Delay Benefit plan or a Critical Illness (CI) and LTC combination plan
Benefits Pays $50 daily benefit indexed to CPI

4 year benefit period (e.g.)

15 year waiting period (e.g.)

Sold in units of $50 daily benefit; can buy up to 8 units

Intended for young workers - enrollment ages < 50

CI requires simplified underwriting 100% of private critical illness insurance & 20% of CLASS LTC benefits until age 60,

100% LTC and 20% CI at age 65, graded in between (e.g.)

Benefits indexed to CPI

Premium Schedule Premium indexed to CPI Premium indexed to CPI
Price Competitive
Benefit Attractive ✓?
Compatible with Private Insurance Opportunity for private insurance to supplement Require private CI insurance for the initial CI coverage
Remark Less anti-selection but uncertain to the exact degree

A more restrictive version of Shadow

Attract young buyers by addressing current needs

Suitable as an option for young workers in addition to a standard CLASS offer

 

PLAN ALTERNATIVES
Category II: Adverse selection issue somewhat addressed but low product appeal
Design 9
CLASS with Long Elimination Period I
10
CLASS with Long Elimination Period II
Description CLASS as 2nd payer after private insurance CLASS as 2nd payer after private insurance or self funding
Benefits Require private insurance purchase

After first 2 years, CLASS will pay for 3 years if claim lasts past 3 years (e.g.)

Sold in units of $50 daily benefit; can buy up to 8 units

After first 2 years, CLASS will pay for 3 years if claim lasts past 3 years (e.g.)

Sold in units of $50 daily benefit; up to 8 units

Alternative:If claim during the first 15 years, the deductible equals to the difference in cumulative premiums of a pre-paid plan and the premiums paid.

Premium Schedule Premium increases 5% each year until age 70 Premium indexed to CPI
Price Competitive X X
Benefit Attractive
Compatible with Private Insurance Require private insurance as the 1st payer Private insurance can be the 1st payer
Remark Must pass underwriting of private insurance plan

CLASS plan may be viewed as superfluous

Less anti-selection but uncertain to the exact degree

CLASS plan may be viewed as superfluous

 

PLAN ALTERNATIVES
Category III: Adverse selection issue addressed with reasonable product appeal
Design 11
Temporary Period Exclusion
12
Phased Enrollment
13
Underwriting Option
Description Delay benefits for certain enrollees under certain conditions Group enrollment first, individual enrollment later after sufficient reserve built up to allow a controlled level of adverse selection. Choice of CLASS Senate or a plan that requires underwriting
Benefits Pays $50 average daily benefit indexed to CPI but no benefits for first 15 years if ADL or cognitive deficits are results of condition at time of enrollment (e.g.)

Unlimited but 20% after 4 years (e.g.)

5 year waiting period

Sold in units of $50 daily benefit; up to 8 units

Pays $50 average daily benefit indexed to CPI

Unlimited but 20% after 4 years (e.g.)

5 year waiting period

Sold in units of $50 daily benefit; up to 8 units

Underwritten plan pays $50 daily benefit indexed to CPI

Unlimited but 20% after 4 years (e.g.)

5 year waiting period

Sold in units of $50 daily benefit; up to 8 units

Premium Schedule Premium indexed to CPI Premium indexed to CPI Premium indexed to CPI
Price Competitive
Benefit Attractive
Compatible with Private Insurance Opportunity for private insurance to supplement (if limited to 1 to 2 units) but compete directly if up to 8 units Opportunity for private insurance to supplement (if limited to 1 to 2 units) but compete directly if up to 8 units Opportunity for private insurance to supplement (if limited to 1 to 2 units) but compete directly if up to 3 to 4 units
Remark Less anti-selection but uncertain to the exact degree

Potential claim adjudication issues

Less anti-selection but uncertain to the exact degree

Individual enrollment may be very restrictive, far into the future or never happen

Competitive and attractive alternative to private insurance

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