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

10/14/2011

The Patient Protection and Affordable Care Act was signed by the President on March 23, 2010. This act establishes a national voluntary insurance program, the CLASS Independence Benefit Plan, to provide community living assistance services and supports to working individuals who have functional limitations and require ongoing assistance in the community. Individuals would pay a premium to participate in the program, and these premiums must be set to assure actuarial solvency for a 75 year period. Because the program is designed to serve working people regardless of functional status at enrollment, the pool of participants is likely to be comprised of a high proportion of employed individuals with disabilities for whom the insurance would be a particularly attractive benefit. Another group who would find the program attractive would be those who have sought to purchase private long-term care (LTC) insurance but been precluded from doing so because of their health status. Current estimates are that slightly less than 20% of all applicants for private LTC insurance are not able to buy policies due to their health status.

A key assumption underlying the development of actuarially fair premiums is that the risk profile of people enrolling in the program matches the profile that has been priced for; put another way, in developing premiums, the Secretary will need to take into account the fact that the population enrolling in CLASS will look very different from a cross-section of the population, or from individuals who enroll in other voluntary insurance programs, like private LTC insurance. This is because in the insurance market, companies are able to underwrite “bad risks” out of the risk pool at the time of application whereas the government will not have the ability to do so. Therefore, obtaining a profile of likely early enrollees and providing descriptive information to inform projections is particularly important for policymakers.

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