A Report on the Actuarial, Marketing, and Legal Analyses of the CLASS Program. Section Six: Actuarial Model Development

10/14/2011

By April 2010, it became clear that existing actuarial models that had been used before enactment of the CLASS Act (both those already relied on by HHS and those being developed by outside groups such as Boston College) would be insufficient to provide CLASS estimates and new models would have to be developed. Actuarial modeling of the CLASS program was undertaken by staff in ASPE, and reviewed by the CLASS Office. The model development and modeling were largely supported through a long-standing contract between Actuarial Research Corporation (ARC) and ASPE, and a new contract with AvalereHealth that began in September 2010. The rationale for developing two models was to compare premiums and other program dynamics using different methodological approaches and data and to assess the sensitivity of results to varying model assumptions. This is standard practice in the insurance industry when developing new products. Further, the ARC model does not include Medicaid offset estimates, while the Avalere model does. The key economic and demographic/actuarial assumptions are largely the same. This section briefly describes the two actuarial models, and model development and estimation across three phases: early model development and estimation; model refinement and development of preliminary benefit options; and final model development and estimation.

Both models adopted conservative assumptions that would tend to produce higher premiums and lower take-up rates than the best existing empirical evidence might suggest. For example, in modeling adverse selection it was assumed that potential enrollees would sort themselves perfectly by health status and join CLASS in reverse order (the most disabled first). The models used conservative assumptions because the existing empirical evidence is relatively sparse and there is great uncertainty around the existing estimates.

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