A Report on the Actuarial, Marketing, and Legal Analyses of the CLASS Program. Section V: Estimating Incidence, Prevalence and Continuance

10/14/2011

The LTC-PS uses estimates of the total number of people with a disability in any given year (prevalence), the number of people newly disabled in a given year (incidence), and the length of time they remain disabled (continuance). Incidence is important because the program will not cover all individuals with a disability at any given point. Continuance allows users to test the impact of varying the amount of time over which benefits will be paid.

The creation of incidence and continuance estimates is inherently difficult because there are few sources of information on the number of people who develop a disability as well as the length of time they remain disabled. Therefore, we estimated prevalence, incidence and continuance by combining four disparate data sets: the 2004 Survey of Income and Program Participation (SIPP), Wave 5, for disability prevalence in the community; the 2004 National Nursing Home Survey (NNHS) for disability prevalence in a nursing home; the Individual Disability Experience Commission (IDEC) table of disability incidence and continuation for the under-65 population; and transition matrixes as published by Eric Stallard/Yee/Manton using the 1984, 1989, and 1994 National Long-Term Care Survey (NLTCS). The following describes our method in more detail.

  1. Prevalence. We first estimated disability prevalence for individuals in the community by age using the 2004 SIPP. Specifically, we defined a person as ‘severely disabled’ if he needed help with two or more activities of daily living (ADL); had Alzheimer’s Disease or any other serious problem with confusion or forgetfulness; or had a mental retardation or a developmental disability such as autism or cerebral palsy. This definition most closely matches the HIPPA disability requirement. In total, we estimated 3 percent of the over-15 population in the community has a severe disability.

    We next estimated disability prevalence for individuals in a nursing home by age in the 2004 NNHS. Specifically, we defined a person as ‘severely disabled’ if he needed limited, extensive, or total assistance with two or more ADLs; was in an Alzheimer’s or dementia specialty unit in the nursing home or had impaired decision making ability; or was admitted to the nursing home directly from an intermediate care facility for the mentally retarded (ICF/MR). In total, we estimated 91 percent of the over-15 population residing in a nursing home has a severe disability.

    Since these two surveys represent distinct populations (SIPP does not include individuals in an institution such as a nursing home, and NNHS excludes individuals outside of the nursing home), we felt comfortable combining the estimates to develop a total HIPPA-equivalent disability prevalence estimate. When combined, we estimate slightly over 3 percent of the total US population has HIPPA-eligible disability. Of this group, 18 percent reside in a nursing home and 82 percent reside in the community.

    There has been considerable debate concerning an apparent decline in disability prevalence over the last decade, including the magnitude and cause of the decline. Given this uncertainty, we chose to model as baseline a continued modest decline in the overall prevalence, at a rate of 0.5 percent per year through 2025, after which we allow the overall prevalence of disability to change with the age of the population. As a result, when the effect of the aging population is combined with this assumed decline in the prevalence rate, our average disability prevalence remains at slightly above 3 percent from 2010 through 2025, at which point it begins to increase slightly, reaching 4.6 percent by 2085.

    In addition, it is possible that a higher percentage of individuals would be able to qualify for an additional measure of disability under the CLASS program given the economic incentives. To account for these individuals, we assume that a portion of the people who currently have one less measure of disability would qualify for the program. For a CLASS program that pays benefits to individuals with 2 or more ADLs, we assume 50 percent of individuals with only 1 ADL would qualify: all nursing home residents and a portion of the community population. For a CLASS program that pays benefits to individuals with 3 or more ADLs, we assume 50 percent of individuals with only 2 ADLs would qualify: all nursing home residents with 2 ADLs and a portion of the community population.

  2. Incidence and Continuance. For the continuation rates, we built separate tables for the under-65 and over-65 population. We constructed a disability continuance table for the under-65 population using the IDEC continuance worksheet. We used the published 90-day continuance rates from IDEC, again to use the HIPPA requirement that the disability be long-term in nature. For the over-65 population, we developed continuance rates using a series of transition matrices developed by Stallard & Yee via the NLTCS data, which uses the HIPPA definition of disability.

    After constructing continuance rates from both of these sources, we created non-continuance rates, or the percentage of individuals with a disability in a given year that ceased to be disabled in the following year. There are two reasons a person ceases to be disabled: mortality and recovery. We separated our non-continuance rate into an estimate of mortality and an estimate of recovery, using the same data sources we used to construct the overall continuance rates. We capped our annual modeled mortality rate at the age-specific mortality rate for all individuals (disabled and non-disabled) as published by the SSA, to ensure that total population mortality was never greater than our modeled mortality.

After constructing prevalence and continuance estimates for each age, we were able to estimate individual age incidence rates via the following formula: Prevalence in year 2 (P2) = Prevalence in year 1 (P1) + Incidence in year 2 (I2) minus non-continuance in year 2 (NC2). Rearranging the terms, we solve for incidence: I2=P2-P1+NC2. We apply the incidence and continuance rates calculated via the surveys to individuals in each program by age.

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