A Report on the Actuarial, Marketing, and Legal Analyses of the CLASS Program. Long-Term Care Work Group

10/14/2011

In addition to its chairs, ASPE’s Deputy Assistant Secretary for Disability, Aging and Long-Term Care Policy and the Director of the CMS Disabled and Elderly Health Programs Group, membership in the Long-Term Care Work Group included representatives from: the Immediate Office of the Secretary; the Administration on Aging; the Offices of the Assistant Secretaries for Legislation, Financial Resources, and Administration; the Office on Disability; the Administration on Developmental Disabilities; the Office of the General Counsel; the Office for Civil Rights; the Substance Abuse and Mental Health Services Administration; the Indian Health Service; the National Institutes of Health; and the Executive Secretariat.

Members of the group took responsibility for preparing policy papers and presenting their work at weekly meetings. The group’s primary purpose was to review the CLASS statute thoroughly, and to identify all of the policy issues that needed to be addressed. Leaders of the group briefed senior HHS leaders.

The issues presented and discussed are summarized below; the full papers are contained in Appendix H.

Enrollment and Vesting. This discussion covered five significant enrollment issues: (1) opt out and payroll deductions; (2) alternative enrollment processes; (3) penalties for lapsing; (4) delays in CLASS enrollment; and, (5) the definition of active employment. The group noted that both CBO and the Business Roundtable had identified the issue that the law mandated automatic enrollment only for employees whose employer had elected to participate in CLASS and that it was not likely that many employers would do so. Other options for enrollment such as employers offering information or a yes/no choice were discussed. Group members analyzed the implications of policy holders lapsing, or skipping multiple payments. Thus, individuals could strategically (and legally) “game” the program, threatening financial stability. The group considered a variety of strategies for addressing the lapsing issue. The group also considered different ways to approach the earnings requirement during the vesting period. The group discussed whether individuals would be required to pay premiums while in benefit status. In an early meeting with representatives from the IRS, HHS officials learned that the IRS code had not been amended to cover payroll deductions for CLASS premium payments so that the protections that addressed the potential failure of employers to pay money withheld from other payroll deductions would not apply to the automatic withholding of CLASS premiums. Enrollment options were discussed to address this concern.

Indexing of Premiums. Based on internal analyses and discussions with outside experts, there was a concern that structural imbalances created by the statutory requirement to index benefits but not premiums would result in threats to take-up and solvency. The group analyzed and discussed the implications of both indexing and not indexing premiums.

Eligibility. The group discussed a number of eligibility issues, including the definition of a “licensed health care professional” and how limitations in activities of daily living (ADLs) would be assessed for individuals with dementia and other non-physical impairments. The group suggested that the actuaries model the program using as eligibility triggers two and three ADLs to support future decision making. The group also noted that the tiering provisions in the CLASS Act, which provide that there must be at least two levels of cash benefits depending on the individual’s functional limitations, could create incentives to overstate ADL limitations. It was therefore important to consider the design of the benefit tiers carefully. The group also commissioned a paper on assessment of people with cognitive impairments. This paper is discussed under Additional Analyses, below.

Cash Benefits. The work group discussed cash benefits -- including their structure and management and consumer privileges, responsibilities and issues related to using debit cards for cash benefits. Much of the analysis was based on extensive ASPE sponsored research on cash benefits and consultation with experts from other nations that use cash benefits for long-term services and supports.

Protection and Advocacy and Advice and Assistance. The group suggested that protection and advocacy (P&A) and advice and assistance services, which are required benefits under the CLASS Act, should be targeted to beneficiaries once they are in claim status.

Administrative Expenses. The group discussed various ways to analyze and implement the statutory three percent cap on administrative expenses provision. ASPE directly analyzed data from regulatory filings from several states, obtained information from outside actuaries and contracted for additional actuarial analyses from the Actuarial Research Corporation (ARC). It concluded that the range of administrative costs is six to twenty percent in the private LTC insurance industry.

Interaction with Medicaid. The group discussed how the Department could address the multiple interactions between Medicaid and the CLASS program.

Additional staff analyses provided to the work group on marketing and information systems are discussed in detail elsewhere in this report.

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