A Report on the Actuarial, Marketing, and Legal Analyses of the CLASS Program. Phase I. Early Model Development and Estimation (March 23, 2010 to September 22, 2010)

10/14/2011

EARLY WORK ON THE ARC LONG-TERM CARE PREMIUM MODEL

ARC began preliminary modeling of CLASS in late 2009 to help HHS and other federal staff understand how premiums would vary based on different levels of participation and program options that were being considered by Congress at that time. Most of this work relied on an existing premium calculator that ARC had previously developed for a different purpose, and had quickly revised to model the major program features of the CLASS Act. Following passage of the ACA, ARC began to systematically review previous assumptions and premium calculations for accuracy. Major revisions to the model were undertaken through early summer 2010 to incorporate several aspects of the program that were not previously modeled in-depth, most notably the impact of the nominal premiums for low income persons and full-time students. In addition, staff at ARC began to update program parameters, the approach to adverse selection, demographic and actuarial assumptions, and input data. The ARC staff made these revisions with the goal of having independent technical experts review the methodology, assumptions, and data used in the model during the summer of 2010.

The first draft describing the model was produced in early April 2010 and preliminary premium estimates were completed in late August. At that point, the estimated baseline average premium at 2 percent program participation for a $50/day benefit based on a 2+ ADL trigger (or similar level of cognitive impairment) with full waiver of premium while in claim was $354/month. Changing the parameters of the program to increase the work and earning requirements during the vesting period, and indexing the premium reduced the premium to an average of $134/month. The impact on premiums of other changes to the program (e.g., increasing the vesting period to seven years; having enrollees continue to pay premiums if receiving home care; changing the duration of the benefit to seven years; and adding a 90 day elimination period) were also explored.

EARLY WORK ON THE AVALERE HEALTH MODEL

In early 2009, ASPE staff learned that Avalere Health was developing a long-term care premium calculator under a grant from The SCAN Foundation. Although the calculator was not intended to directly model the CLASS program, many of the components could be adapted to develop a more robust model that could more fully analyze aspects of CLASS. This was recognized by ASPE staff following the passage of the ACA as an opportunity to develop an alternative model to compare output from ARC, and to better understand how differences in methodology, assumptions, and input data affected premium estimates and CLASS program dynamics. After briefly considering revising the model in-house, ASPE decided to pursue a contract with Avalere Health directly. ASPE developed the Statement of Work and other contract documents over the summer of 2010; the contract was formally awarded to Avalere Health on September 17, 2010. The first contract activity was for staff at Avalere Health to attend a meeting five days later at HHS on actuarial modeling of the CLASS Act.

CLASS ACT MODELS MEETING

A half-day meeting of technical experts was held on September 22, 2010 to discuss progress on modeling the CLASS program (see Appendix N for the agenda, list of participants, and presentations). Participants included actuaries, economists, and analysts in health and long-term care in HHS, and members of several outside organizations, both public and private. The purpose of the meeting was threefold: (1) to describe the updated ARC Long-Term Care Premium Model and critically review the methods, assumptions and data underlying the model; (2) to describe and review Avalere Health’s Long-Term Care Policy Simulator developed for The SCAN Foundation and plans for its revision to better model the CLASS program; and (3) to discuss outstanding technical issues and get feedback on such critical questions as:

  • Do the models incorporate realistic assumptions related to incidence/continuance of functional limitations and trends in disability? Are the assumptions related to the prevalence and trends in cognitive impairment reasonable?

  • Are there alternative approaches to modeling the relationship between CLASS participation and premiums?

  • Is potential adverse selection adequately incorporated into the models?

Because the models were still being developed, the preliminary premiums that ARC produced in late August were not presented; the discussion was focused exclusively on how the two models could be improved going forward. Several suggestions that were raised in the meeting led to substantive changes in the models. For example, ARC expanded its approach to adverse selection, adding a second approach that eventually became the “first-in” method. Staff at ARC also further revised and updated key assumptions and data on long-term care utilization. Suggestions for ways to improve the Avalere Health model’s estimation of age-specific participation were also eventually incorporated.

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