A Report on the Actuarial, Marketing, and Legal Analyses of the CLASS Program. Reduced Benefit Amounts

10/14/2011

According to the statute, benefits are “not subject to any lifetime or aggregate limit.”35 As private insurance has painfully learned, because beneficiaries have no incentive to preserve their benefits when there is no lifetime limit, unlimited benefit plans are expensive and risky. Most policies with lifetime benefits had significantly unfavorable experience. Premiums for lifetime benefits can be more than 50% higher than the corresponding premiums for a limited benefit period plan. The vast majority of group long-term care insurance policies today have a limited benefit period.

Our recommendation is to satisfy that statute by paying 100% of the daily benefit for the first five years and then only 20% thereafter, without limiting the aggregate amount of duration. This feature is intended to meet the requirements in the statute, keep CLASS premiums reasonably close to that for private insurance, and minimize one potential source for claim variability.

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