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

10/14/2011

The use of cash benefits in long term care insurance has a long and varied history. Contrary to popular belief, cash benefits were more prevalent in the early days of the product’s history -- in the late 1980’s and early 1990’s -- than they are today. With the emphasis of the CLASS Act on a pure cash benefit payment model, it is important to review the history of the use of cash benefits and address key issues in best practices when managing such a policy.

We begin with some basic terminology used to describe the basis on which long term care insurance pays benefits since the terminology is not always used consistently. We provide some level-setting definitions:

Cash (Disability) Benefit -- the insurer pays a pre-defined cash benefit for each day the insured satisfies the “Chronically Ill” definition of needing help with 2 or more activities of daily living (ADLs) or having a severe cognitive impairment. The cash payment is made without regard to whether the claimant receives either paid services or informal care.

Reimbursement Benefit -- the insurer reimburses (or pays directly with assignment to a provider) expenses incurred for covered services, up to the daily or monthly maximum amount selected by the insured for that service. Payments are made for each day the claimant is Chronically Ill and receives a covered service.

Indemnity Benefit -- same as the above however, instead of paying expenses up to a set dollar amount, the insurer pays the set dollar amount without regard to the actual cost of services incurred. They may pay in excess of the cost of the care received. But it is required that the insured both be Chronically Ill and incur covered expenses.

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