A Report on the Actuarial, Marketing, and Legal Analyses of the CLASS Program. Implications for Class Act

10/14/2011

One of the primary concerns for CLASS is the premium cost impact of a cash benefit design and whether CLASS can be competitive with other private insurance offerings and thus attract a significant and healthy risk pool based on the premiums associated with the plan design. A cash benefit -- all else equal -- adds 20% to 100% to the premium cost of a “no-cash benefit” plan. Yet many of the competing plans in the private market without a cash benefit have significant benefit flexibility as shown in the summary of “ancillary” benefits included in today’s coverage.

While a cash benefit has strong consumer appeal because of its flexibility, the experience shows that, given a choice, most people prefer the more affordable non-cash or limited cash benefit plan. A concern for CLASS is whether the cash benefit will be more attractive to the population most at risk of being heavy users of benefit -- those with current disabilities -- and might not be price-competitive to attract a broad and healthy risk pool as well.

Unfortunately, the prevailing risk management techniques which are critical with a cash benefit design in order to maintain appropriate and cost-competitive coverage at the same time add to administrative costs. So it will be a challenge for CLASS to maintain the 3% of premium allowance for administrative costs while also having as robust and appropriate risk management infrastructure as will be needed. There are already concerns with the 3% premium allowance and the additional considerations needed to appropriately manage a cash benefit within that margin only make that more challenging.

It will be important for CLASS to anticipate the need for in-person assessments and appropriately scheduled re-assessments based on presenting condition of the claimant as part of its administrative cost structure. Establishing a strong benefit determination, review and appeal process and robust protocols for timely reassessments is the single most important challenge for CLASS in order to maintain the cost competitiveness and rate stability of the all-cash model. The infrastructure, risk management tools, training and staffing are all necessary to provide the required structure and process to support the cash benefit. There will be an additional administrative burden if the level of the cash benefit is varied with degree of disability; this will strengthen the incentives for insuredsto maintain benefit eligibility and may encourage what is called “ADL-creep” where higher degrees of loss than are actually found are claimed. All this means additional risk management measures will be needed even beyond those that are already being brought to bear on LTCI in general and a cash benefit in particular; today, there are no products that pay a higher benefit level based on degree of loss alone.

Similarly, utilizing the plan of care to help guide claimants to appropriate services and providers and to help them manage care costs is also important. The language of CLASS seems to provide for an ability to monitor expenses and determine benefit payouts accordingly. One of the most promising best practices we observed would be the model where the plan of care takes in to account actual expenses and imputed expenses for unpaid/informal care and bases the approved cash allowance on those expenses.

There are few plan design strategies that CLASS can utilize to manage the costs of the all cash approach. The coverage is already defined as unlimited/lifetime. To some extent, the lower daily benefit amounts will help mitigate the costs of the cash approach. It is not clear whether there is any flexibility to include variations on “all cash” -- e.g., a full benefit payout for expense reimbursement and then a portion of the balance up to the pro-rated monthly maximum paid in cash, rather than all of the balance paid in cash.

The industry has other “best practices” applicable to CLASS. Specifically, CLASS should consider some of the tools carriers use to assist in gathering needed information for benefit reassessment include structures questionnaires to physicians about the claimant’s need for supervision and support, ADL questionnaires for providers and informal caregivers, medical management tools, and the like. Telephone-based assessments can be helpful but only when there is other corroborating information like care notes or provider records.

Finally, with respect to marketing and education, if CLASS is more costly relative to the private market competition, it will need to focus specifically on the advantages of the cash benefit and how a smaller cash benefit provides more flexibility than a larger benefit amount paid on a reimbursement benefit. Helping consumers see the product advantages associated with a higher premium may help but this is still a challenge in such a highly price sensitive market. The concern, of course is that this message may work for those who have current or anticipated care needs but be less persuasive with a broader and healthier risk pool.

TABLE 1: Types of Cash Benefits in Long Term Care Insurance -- Individual Market and Multi-life Market
(companies are listed in order of market share in terms of in-force policies)
Company No
Cash
  Component  
All
  Cash  
Cash
  Rider  
Built-in
Cash
  Component  
Ancillary/
  Remainder  
Cash
Genworth Financial X        
John Hancock     X    
Bankers Life          
Transamerica X     X  
MetLife   X     X
UNUM   X      
River Source (IDS)            
Thrivent          
Penn Treaty          
Allianz   X X X  
State Farm X        
Fortis          
New York Life X        
Northwestern LTC X     X  
Mutual of Omaha       X  
MedAmerica   X   X  
Prudential     X X  
Mass Mutual X        
Ability Resources          
Physician’s Mutual X   X    
Equitable Life & Casualty   X        
Knights of Columbus          
CUNA Mutual X        
Guarantee Trust X        
Country Life X        
State Life X        
AIG Life       X  
Berkshire Life X        
Standard Life & Accident          
Minnesota Life X        
AssurityLife X        
Other companies with cash benefits: LifeSecure (Ancillary); United of Omaha (Built-in). Does not include companies no longer selling in the individual market.

 

  TABLE 2: Types of Cash Benefits in Long Term Care Insurance -- Group and Association Market  
(listed in order of market share in terms of in-force policies)
Company No
Cash
  Component  
All
  Cash  
Cash
  Rider  
Built-in
Cash
  Component  
Ancillary/
  Remainder  
Cash
UNUM   X      
Met Life X        
John Hancock          
C.N.A.   X      
Federal LTC Insurance Program   X        
CalPERS X        
Prudential       X  
Genworth Financial          
WEA X        
(Aetna) -- not selling   X      

 

TABLE 3. Summary of LTC Insurance Policies with Cash Benefit
Product Policy
Type
Classification How Benefit
is
Implemented
Level of Cash
Benefit
Options
Is There a
“Lifetime
Limit”
Specific
for the
Cash
Benefit
Limits on
Receipt of
Other
Benefits
Limits on
Use How
Cash Can
be Benefit
Allianz Generation Protector II Individual Cash Rider Not clear if have to select % at purchase or at time of claim Can elect 10%, 25% or 50% through monthly rider or 100% daily benefit in cash through full rider (up to $250 per day). Assume the amount is based on the home and community benefit which is set at a pre-selected % of NH. No Only for 100% cash benefit None
American General Individual Ancillary Cash   40% of pre-selected monthly maximum (and can switch between cash and reimbursement) No Yes, in lieu of HCC and Facility Case benefits None
C.N.A. Group            
John Hancock Custom Care II Enhanced Individual Rider Automatic at time of claim 15% of HCC monthly benefit No info Assume can’t use with NF or AL benefits None
LifeSecure Individual Ancillary Automatic at time of claim Up to 50% of unused portion of monthly benefit No No Yes subject to plan of care specifics and documented expenses but family care allowed
MEDAmerica Simplicity Individual All Cash Consumer must submit benefit request form each month Selected by consumer at purchase N/A (this is a cash-only policy) No None
MetLife Premier Individual Built into policy
All Cash
No info Selected by consumer at purchase N/A (this is a cash-only policy) No None
MetLife LTC LifeStage Advantage Individual As rider (not available for $1m total benefit) At initial application Full monthly benefit No No None
Mutual of Omaha Mutual Care My Way Individual Built into policy At time of claim (can stop and restart cash benefit) 35% of HC monthly included, but option to increase to 40% or 50% (not sure if requires rider) No Yes, no other benefits payable None
Mutual of Omaha Mutual Care 3 & 5 Individual Built into policy At time of claim (can stop and restart cash benefit) 35% of HC monthly No Yes, no other benefits payable None
Physicians Mutual Individual As rider at time of purchase only At initial application (must receive HHC at least 1 day during the month) 20% of home and community care benefit No Yes, does not apply to people living in NF or ALF or hospice None
Prudential GLTC 3.5 Group     50% Cash Alternative      
Prudential LTC3 (Prudential Evolution offers a “starter” cash benefit of $1,500 per month for a year) Individual Built into policy and available in two riders: one for 50% of benefit and one for 100% cash. At time of claim and requested monthly 40% of HC Daily Benefit (see note in previous column on riders). No Yes, must receive HC benefit only None
Prudential LTC3 Group Built into policy and available as rider No info No info No info No info No info
Transamerica Transcare Individual Built into policy No info 10 times the daily benefit (30%) No info No info No info
United of Omaha -- Assured Solutions & Assured Solutions Plus Individual Built into policy and option for larger cash benefit (50% of home care) Option at time of claim 40% of the Basic Home Care Services1
Monthly Benefit Amount selected
No Yes -- in lieu of other services None
  1. Basic Home Care Services include home health aide and homemaker services.

 

TABLE 4: Premium Impact of Cash Benefit Under Alternative Approaches*
CASH BENEFIT RIDERS -- Cash Rider Additional Premium Cost by Cash Amount and By Company
  Age   20%
  Cash  
25%
  Cash  
50%
  Cash  
50%
  Cash  
75%
  Cash  
75%
  Cash  
75%
  Cash  
100%
  Cash  
100%
  Cash  
100%
  Cash  
45 13% 30% 13% 41% 28% 50% 59% 39% 70% 70%
55 13% 30% 11% 41% 25% 50% 59% 36% 70% 70%
65 13% 30% 8% 50% 20% 49% 59% 33% 66% 70%
75 13% 30% 7% 50% 19% 49% 59% 30% 66% 70%
Notes: $200/day, 5 year lifetime maximum, 5% compound inflation protection for life, 90-100 day elimination period. These riders all provide cash benefit in lieu of home care reimbursement and cash paid reduces the lifetime maximum. For 20% rider, insured must receive at least one day of paid home care in the month in order to receive the cash benefit and the cash benefit does not reduce the lifetime maximum.

 

CASH BENEFIT RIDERS -- Ancilliary/Additional Cash Model Additional Premium Cost by Cash Amount and By Company
  Age   15%
  Cash  
25%
  Cash  
45 10% 7%
55 10% 13%
65 10% 11%
75 8% 17%
Notes: Same coverage amounts as above however the 15% cash benefit is an “additional” amount to expense reimbursement and does not count against the lifetime maximum. For the 25% cash plan, cash benefit only paid if covered expenses also received and only if the maximum benefits paid (reimbursement plus cash) do not exceed the policy’s maximum monthly/daily benefit for home care.

 

  Premium Comparisons under Alternative Built-in Cash Benefit Payment Scenarios  
  Age     10x DBA  
per
Month
  10 x DBA  
per
Month
35%
  Cash  
40%
  Cash  
40%
  Cash  
40%
  Cash  
50%
  Cash  
45 $4,330 $2,766 $3,313 $3,379 $2,918 $3,328 $3,750
55 $5,927 $3,409 $3,770 $3,845 $3,702 $3,938 $4,267
65 $8,157 $5,710 $6,338 $6,465 $5,885 $6,314 $7,175
75   $15,913     $12,544     $13,975     $14,254     $14,244     $15,017     $15,820  
Note: Similar benefit design as above. Benefits paid reduce lifetime maximum.

 

Premium Comparisons: All Cash vs. No Cash Component
  Age     All Cash*     All Cash     No Cash     No Cash     No Cash     No Cash  
45 $4,273 $3,888 $3,180 $5,688 $2,052 $2,160
55 $5,745 $5,440 $3,840 $6,972 $3,024 $3,300
65 $8,599 $10,152 $5,880 $9,696 $4,692 $5,640
75   $16,031     $19,008     $13,380     $16,932     $7,800     $10,560  

 

  Premium Comparisons: All Cash vs. No Cash Component -- by Percentage Difference in Premium All Cash / No Cash  
  Age     All Cash*     No Cash     No Cash     No Cash     No Cash  
45 $4,273 / $3,888 1.3 / 1.2 0.75 / 0.68 2.1 / 1.9 1.9 / 1.8
55 $5,745 / $5,440 1.5 / 1.4 0.82 / 0.78 1.9 / 1.8 1.7 / 1.8
65 $8,599 / $10,152 1.5 / 1.7 0.89 / 1.05 1.8 / 2.2 1.5 / 1.8
75   $16,031 / $19,008   1.2 / 1.4 0.95 / 1.12 2.1 / 2.4 1.5 / 1.8
Note: Same as table above but percents rather than pure premiums.

* NOTE: All plans were run, when possible, with monthly benefit maximums of $6000, 100% home care, 5 year benefit length, 5% automatic compound inflation, standard health rating, no discounts. Possible exceptions follow:

  • One insurer offers a lifetime maximum of 5.5 years equivalent as closest option to the “standard plan” used.
  • Another insurer offers only a daily, not a monthly maximum.
  • The “ALL CASH” plan column one is for a lesser lifetime maximum -- $300,000 which equates to roughly 4.17 years; this was the closest approximation to a 5 year plan.
  • The other “ALL CASH” plan is for a 5 year lifetime maximum.

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