A Report on the Actuarial, Marketing, and Legal Analyses of the CLASS Program. Reenrollment after Lapse

10/14/2011

For reenrollment after a lapse from the CLASS Program, the statute prescribes separate treatments based on the time period between lapse and reenrollment:

  • less than 90 days,
  • 90 days to 5 years, and
  • over 5 years45.

Potential for gaming exists for reenrollment after 90 days. For lapse period between 90 days and 5 years, the statute merely requires 2 years of continuous payments (of premiums for a new enrollee at the same attained age at reenrollment) and the initial 5 year vesting period before claiming. This encourages a ‘skip-and-go’ scheme where an enrollee would lapse, reenroll within 5 years from lapse, pay a premium, lapse again, and reenroll permanently only when his or her health deteriorates. If the lapse period is over 5 years, a similar but slightly less devious gaming opportunity also exists if no control is in place.

We propose the following rules in order to treat the reenrolled individuals and the in-force enrollees equitably. If the lapse period is less than 90 days, payment of due premiums is required to maintain enrollment. If the lapse period is between 90 days and 5 years, the individual must:

  • Pay all back premiums except for the first lapse,
  • Pay future premiums based on the attained age at reenrollment, and
  • Meet the minimum earnings requirement again, or restart the 15 year exclusion period if the plan included Temporary Exclusion.

If the lapse period is over 5 years:

  • Meet the minimum earnings requirement again,
  • Pay future premiums based on the attained age, and
  • Pay an actuarially sound premium that anticipates the enrollee will be very likely to claim or restart the 15 year exclusion period if the plan included Temporary Exclusion.

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