A Report on the Actuarial, Marketing, and Legal Analyses of the CLASS Program. Daily Benefit Amounts and Triggers

10/14/2011

At least two and up to six levels of benefits are required for the CLASS plan32. We propose two levels of benefits:

  • $50 initial daily benefit at 2-3 ADL deficiencies
  • $60 initial daily benefit at 4+ ADL deficiencies or cognitive impairment.

The amounts are chosen to discourage beneficiaries from claiming a higher level of disability than is warranted.

After the first year of an individual’s enrollment, the daily benefit will increase according to the increase in the Consumer Price Index for Urban Consumers (CPI-U, or simply CPI). This is more generous than the required benefit increase in the statute. One potential interpretation of the statutory language is that the increase in the benefit amount begins only when a beneficiary receiving benefits (that is, everyone who claims starts with a $50 daily benefit). Another potential interpretation is that the increase in the benefit amount starts from the 6th year of the CLASS Program. Note that increases in long-term care service costs have been historically higher than the CPI33. While this proposed benefit indexing method may not cover future inflation increases fully, it does help to keep the premiums affordable.

In addition to the ADL and cognitive impairment triggers, the Secretary is authorized to define another similar benefit eligibility trigger34. A possible third trigger would be one for mental illness. We believe the cognitive trigger already accommodates beneficiaries with mental retardation and some people with intellectual disability. As well, there is no established test similar to the standardized test for cognitive impairment. A standardized test with sufficient experience data is a highly desirable for estimating claim incidence rates in an insurance setting. Adding this third trigger at this time will make the CLASS Benefit Plan more expensive and increase the likelihood of inadequate premiums for the Program. If the Program shows favorable results, we should revisit this issue.

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