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

10/14/2011

Table __ compares premiums under varying types of cash benefit provisions. Some companies offer more than one option so the data provided represent multiple offerings of multiple insurers. Samples ages of 45, 55, 65, and 75 are used. The “base plan” chosen for analysis is one with a $6,000/month benefit ($200/day), a 90-100 day elimination period, built-in 5% compound inflation protection and a lifetime maximum roughly equal to 5 years. In most cases, these policies pay the same amount for home care as facility care. Obviously, there will be other minor benefit differences (e.g., one policy may have a more generous bed reservation benefit than another), but for the most part the important coverage elements are the same. We used only standard, nondiscounted rates.

Obviously, for policies with a cash rider, the additional premium cost of that rider depends on whether it pays 20% of the home care reimbursement amount or 100%. For the smaller benefits (20% - 25%), the additional cost is roughly 13 to 30%. At the other extreme, the 100% cash benefit can add as much as 70% to the premium, although insurers vary considerable in how they price this rider.

The additional premium cost for the ancillary cash design is more modest -- roughly 7% to 17% depending on company, cash amount and issue age.

For companies with a “built-in” cash benefit, we show actual annual premium amounts since those companies do not have a “no cash” option against which to compare the premium cost. There are few consistent patterns; for the most part the higher the built-in cash amount, the higher the premium, but in some cases, a more limited policy design has a higher premium cost. Other plan design and price assumption differs are likely to be a factor.

Finally, we compare two “all cash” policies with 4 “no cash” policies. The premiums and the premium differentials are both shown. Again, there are differences by carrier. The additional cost for an “all cash” vs “no cash” policy ranges from 20% at the oldest ages to 100% nearly across all ages for one company.

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