A Report on the Actuarial, Marketing, and Legal Analyses of the CLASS Program. Section III: Estimating the Premium Paying, Benefit Eligible Population

10/14/2011

In order to estimate the first group that would be enrolling in the program we start with an estimate of the overall population. From that, we estimate the enrolled population by determining the overall population that is eligible to enroll through attachment to the work force. We then derive the population that would be eligible to pay premiums and receive benefits. The following provides the steps involved in creating the estimate of people eligible to enroll.

  1. Estimating the Overall Population. Our first step was to estimate the entire population, by age, from 2010 through 2100. We started with Social Security estimates of population, which contain all residents of the United States, and account for the agency’s expectations for changes in nativity, mortality, immigration and emigration.

  2. Estimating Attachment to Work Force. Next, we subdivided the population according to work status. We used estimates of the labor force (people working or looking for work) as well as an estimation of retirement by age, in order to account for individuals who are participating in the program for three or more years and retire but continue to pay premiums.

    1. Working. To calculate employment, we used data from ACS. To identify workers, we used the variables for “Employed-at work” and “Employed, with a job but not at work,”1 which combined we called “Working.” This was approximately 48 percent of the total population in 2007.

    2. Looking for Work. We also created, as an initial calculation, estimates of the number of unemployed persons as recorded in ACS. Using the initial estimate of approximately 6 percent unemployment,[2]we varied this rate annually by the projected unemployment rate as published by the CBO. This unemployment rate is a percentage of the labor force. When expressed as a percentage of the total population, the same figure is only 3 percent.

    3. Labor Force. The labor force, which is the combination of people working, unemployed or “looking for work,” comprises approximately 51 percent of the total population. For future estimates of the size of the labor force, we assumed the percentage of people at each age in the labor force remains constant at the initially estimated rate over the entire course of our projections.

  3. Low-Income Individuals. After constructing these basic groups of individuals by age, we also needed to determine how many individuals would be above the minimum earnings threshold but below the low-income earnings threshold. These estimates are necessary to estimate the impact of varying the program’s low-income subsidy on premiums as well as calculate the impact on Medicaid spending. We created various levels of income thresholds to mirror possible options of the CLASS program.

    We model the enrollment of low-income individuals separate from overall enrollment, given the different motives of this population. We assume a good portion of individuals eligible for the low-income subsidy will enroll in the program, although not the entire population. While there is a relationship between income and age, we estimate that in the initial years of the program, new enrollment of low-income eligible individuals will likely include a higher percentage of older individuals. For subsequent years’ enrollment, we estimate a larger portion of the low-income subsidized individuals will be younger.

    Given the general relationship between age and income, most individuals lose low-income eligibility as they age. We assume the average low-income enrollee does not remain in the program after they lose eligibility, given the expected increase in premiums. In addition, we do not include any estimation of individuals gaining low-income premium eligibility in retirement, given the uncertainty in the CLASS program with this option.

  4. Vesting. Since each enrollment group is modeled and tracked separately, we are able to directly estimate the impact of vesting by requiring each group to complete five years of participation before they are eligible to receive benefits. We include two factors that result in an individual not reaching their vesting threshold: mortality and policy lapse.

    • Mortality: we use the overall population mortality estimates as published by the Social Security Trustees. We do not assume that CLASS program enrollees differ in their average mortality rate than non-CLASS enrollees.
    • Policy lapse: For a baseline estimate, we assume that 0.5 percent of participants allow their policies to lapse each year for the first 20 years, after which we assume there are no additional policy cancellations. We also vary the lapse assumptions to determine the potential impact on premiums for each enrollment group.

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