A Report on the Actuarial, Marketing, and Legal Analyses of the CLASS Program. Phase II. Model Refinement and Development of Preliminary Benefit Options (September 23, 2010 to June 22, 2011)

10/14/2011

Actuarial work over this period focused on further revisions and testing of the ARC model, and the completion of a revised LTC-PS that could more completely model the CLASS program. HHS sought to have both models in “near final” condition (with extensive documentation) so that preliminary benefit options could be developed and tested, and a Technical Expert Panel (TEP) could thoroughly vet both models in spring 2011.

During this time period, the CLASS Office hired its Chief Actuary, also known as the Director of Actuarial Integrity and Benefit Design. He began developing potential plan designs to mitigate the effects of adverse selection. He also worked to review and understand the ARC and Avalere models and provided his perspective on those. He focused on program provisions having a significant influence on the benefit design, including that: (1) participation in CLASS is voluntary; (2) actuarial soundness is a requirement; (3) any successful benefit design must present a clear value proposition to attract enrollees; (4) no underwriting other than age can be used to set premiums or prevent enrollment; and, (5) CLASS is not an entitlement program. The CLASS Office brought in an actuary from the U.S. Office of Personnel Management on a temporary detail. He and the Chief Actuary coauthored a report, Actuarial Report on the Development of CLASS Benefit Plans (see Appendix O), which discusses their analyses and findings, and describes benefit plans that have the potential of being actuarially sound.

PROGRESS ON THE ARC LONG-TERM CARE PREMIUM MODEL

Staff at ARC continued to revise the model and update the input data based on suggestions made by the CLASS Chief Actuary and the participants in the CLASS Act Models Meeting in September 2010. In early January 2011, another set of baseline premiums was estimated along with several benefit options with various work and earnings requirements during the vesting period (at this point almost all estimation assumed that premiums would be indexed, i.e., increase according to a fixed schedule such as CPI-U). The estimated baseline average (indexed) premium was now slightly lower: $339/month assuming 2 percent program participation for a $50/day lifetime benefit that used a 2+ ADL trigger (or similar level of cognitive impairment) with full waiver of premium while in claim. Increasing both the work requirement (to five years instead of three of five years) and earning requirement (to $12,000 per year instead of $1,120 per year) during the vesting period produced a slightly lower average premium compared to the $134 estimate from April 2010: $127/month. These premium estimates were forwarded to the Chief Actuary at the CLASS Office on February 17, 2011. Contemporaneously, staff in ASPE and the CLASS Office began to explore alternative benefit options that might lead to reduced premiums. Several of these were formally modeled (discussed further below and in the Actuarial Report on the Development of CLASS Benefit Plans which can be found in Appendix O) and eventually presented at the TEP meeting. Analyses of the implications of changes to key economic and demographic/actuarial assumptions continued in preparation for the TEP meeting as well as the development of final estimates to present to the TEP.

PROGRESS ON AVALERE HEALTH’S LTC-PS

Because the original LTC-PS was not designed to model CLASS, work by staff at Avalere Health concentrated on developing a thorough CLASS baseline prior to the planned TEP meeting and building in as much flexibility to model alternatives as possible. The first preliminary estimates were produced in late January 2011. The average premiums were very similar to those being estimated by the ARC model, although the distribution of premiums by age was different. Actuarial work in late winter and the spring, as well as drafting documentation, focused on preparation for the TEP Meeting which was scheduled for June 2011.

TECHNICAL EXPERT PANEL MEETING ON ACTUARIAL MODELING OF THE CLASS PROGRAM

The full-day meeting of the TEP took place on June 22, 2011 (see Appendix P for the agenda and meeting materials). As with the previous meeting, participants included actuaries, economists, experts in disability data, and analysts in health and long-term care; none of the formal members of the TEP were federal employees, although participants included the CLASS Chief Actuary, actuaries from SSA and CMS, and other technical experts. Time during the morning was devoted to presentations on the two models and a review of methods, assumptions, and data. The agenda in the afternoon consisted of a review of the premiums produced by each model under different sets of assumptions and alternative benefit designs. The TEP reached consensus that the models’ methods and demographic/actuarial assumptions were credible and that the estimates were plausible. There was some debate as to whether the incidence rates in the ARC model were too high, and thus premium estimates also too high. The TEP also extensively discussed issues of adverse selection and suggested follow up work to improve the models’ handling of adverse selection; however, TEP members reiterated that there was no definitive way to determine the impact of participation and adverse selection a priori because CLASS is such a unique program, and CLASS modeling would thus be inherently uncertain. The discussion of alternative benefit designs was brief and there were no strong opinions voiced one way or the other about specific options.

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