A Report on the Actuarial, Marketing, and Legal Analyses of the CLASS Program. Scheduled Increasing Benefits

10/14/2011

This design is similar to the Limited Initial Benefits. If the enrollee qualifies for benefits, it pays a $20 daily benefit if claimed during the 6th years of enrollment. The $20 daily benefit increases by $6.50 each year of enrollment to an ultimate of $150 at the 26thyear and thereafter. The benefit will pay for a maximum of 36 months only. The intent is to discourage high risk individuals to enroll given the relatively low benefits in the early years. In order to comply with the statute, we believe the potential enrollees must choose between this design and the pre-paid plan as described in the Adverse Selection section.

In order to attract workers who desire a richer benefit, this design can work in conjunction with a private insurance offering. Together with coverage from the private plan, the total benefits of the package will pay a level $150 from the first year of enrollment. Thus the private plan will provide coverage during the vesting period of the CLASS plan and the coverage will decrease each year to no coverage after 25 years of enrollment. To provide inflation protection, all daily benefits described for this design will increase by 3% each enrollment year.

The advantage of this design is that the effect of adverse selection is controlled to a certain degree but not eliminated. To be actuarially sound, this design will probably be more expensive than private insurance. It will be a challenge to compete with the more straightforward $150 daily benefit private insurance plan. Another disadvantage is the complexity of the benefit schedule and the offering the pre-paid plan as well as the private insurance supplemental plan.

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