A Report on the Actuarial, Marketing, and Legal Analyses of the CLASS Program. Categories of Cash Benefits

10/14/2011

Today there are four approaches to offering cash benefits. Of these, what we call “All Cash” is the most akin to CLASS. The others offer various modifications with a cash benefit that is not as comprehensive as the “All Cash” approach. With these variations, it seems the industry is looking for ways to offer some of the additional flexibility of cash while also offering a more cost-competitive product. (Tables 1 and 2 show the prevalence of the various cash benefit types across both the individual and group markets.) The specific design variations offered within the family of “cash benefits” are summarized below.

All Cash

This type of product generally pays exclusively a cash benefit in specified amounts once eligibility triggers have been met. The cash benefit can be paid only when the insured is not confined in a care facility (with the facility-based benefit paid on a reimbursement or indemnity basis), or the policy can pay a cash benefit for any level of care need. At present, none of the “All Cash” products vary the benefit amount by degree of disability as CLASS is contemplating. Management of the “all cash” benefit varies (as discussed below), but generally insurers offering these types of products do not require proof of the receipt of either paid or unpaid long term care services. Sometimes, insurers that provide the “All Cash” model do not include other “ancillary” benefits like respite care, hospice care, informal caregiver training, equipment or home modification as the “cash” can be used for those types of services, and more.

Four companies have been associated with this type of benefit; Aetna, MedAmerica, Metropolitan Life and UNUM. Of these, only MedAmerica and UNUM are actively selling this product today. Aetna offered this product in the group market, as noted above, but no longer sells long term care insurance and has transferred some of its group cases to other carriers (most notably Prudential). MetLife recently stopped selling its “all cash” policy although they continue to administer the policies of this type which are in-force.

MedAmerica offers “All Cash” products that feature cash benefits paid on a monthly basis. Insureds who meet the benefit triggers must submit a form each month certifying that they continue to have the condition (or reside in the same care facility) as when they were initially assessed as benefit eligible. MedAmerica seems to be using this monthly form as the plan of care required of tax-qualified long term care insurance products under HIPAA.

Unum offers both a cash product (called Total Home Care) and a service reimbursement product (Professional Home Care). In the group market, the choice of which to offer is generally made at the sponsoring employer level. Although they are no longer selling in the individual market, previously the insured could select at time of purchase the approach they prefered. Unum’s target market includes numerous small businesses many of which include some amount of employer contribution. This serves in effect as a way of lowering the price of the “All Cash” product to the insured.

Cash Benefit as a Rider.

Some companies offer a cash benefit as a rider to a traditional expense reimbursement policy. The rider, obtained for an additional premium cost, allows insureds to receive the full amount of their home care benefit in cash assuming they meet all of the benefit triggers. The rider must have been selected at time of purchase. This option is offered as a part of a service reimbursement policy but changes how the home care benefits are paid. The prevailing approach is one where insureds decide on a month-to-month basis whether to elect benefits in the form of cash or as an expense reimbursement. Insureds using this benefit are more frequently assessed for benefit eligibility than those with the service reimbursement benefit. Some insurers have stopped offering this rider on policies with a lifetime duration and/or with high daily benefit amounts. And others have stopped using this approach entirely and instead use a “Built-in Cash Component” described below.

Built-in Cash Component.

Some carriers build in to the policy a provision for a cash benefit offered at less than the full home care benefit amount as an option at the time of claim. If the insured so chooses, they can elect to receive cash (typically on a month to month basis) in lieu of home health care benefits. The cash benefit may be paid at anywhere from 10% to 50% of the home care reimbursement amount. (Most carriers offer a home care benefit equal to the facility care benefit, and some even allow the home care benefit to be set at 150% of the facility care benefit amount.)

The idea behind this approach is to design the product to include a cash feature which is “premium neutral” thus mitigating some of the risk management issues associated with the “all cash” model. This model is also easier to sell since it offers the flexibility of cash without the “sticker shock” of the higher premium of the rider approach or “all cash” approach. In some cases, insurers put lifetime limits on the use of the cash benefit option and in other cases they do not.

Remainder or Ancillary Cash.

Two companies at present have a different approach. For both, the cash benefit is integral to the policy and not offered as an additional-cost rider. One company allows the insured to access cash if there are benefits remaining in their monthly home care reimbursement benefit at the end of the month. It is essentially an expense reimbursement policy with an added cash feature. Insureds who meet the benefit trigger and are receiving home care receive a traditional expense reimbursement benefit, however, if at the end of the month there are any funds remaining in their monthly home care benefit allowance (an amount chosen by them at time of purchase), they can elect to receive reimbursement for a wide array of long term care related expenses not covered in the policy, including family care, at up to 50% of that unused portion in the form of cash. The “cost” for family care is based on the number of hours of care that will be provided and prevailing rates for that type of care when provided by a home health aide or similar provider type in the area. They can also elect to leave the unused balance in their “pool of benefits” thereby conserving their lifetime maximum for future use.

Another insurer offers cash as a separate benefit that can be accessed by insureds who have met specific conditions. To be eligible for this benefit, the insured must: 1) meet the eligibility triggers; 2) satisfy the elimination period; 3) receive care at home; and 4) receive at least one day of home care during the month. Further, the insured must not have resided in a nursing home or assisted living facility during the calendar month. The cash benefit does not reduce the insured’s lifetime maximum benefit and can be continued as long the insured continues to meet these conditions. The cash amount is equal to 15% of the monthly service benefit to be used as the insured’s discretion; no proof of services or other verification of how the funds were used is required. The benefit is paid as a supplement to the regular service reimbursement benefit.

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®