A Report on the Actuarial, Marketing, and Legal Analyses of the CLASS Program. Section VIII: Limitations

10/14/2011

Due to the significant number of disparate data sets and assumptions used to create the LTC-PS, there are a number of limitations regarding the analysis. Beyond the issues already highlighted in this paper, we note the following points:

  • Disability estimates. Throughout the course of creating the Model, the single biggest issue we encountered was the lack of consistent estimates regarding the number of individuals with severe disabilities. Many of the data sets we examined had different ways of measuring disability, which in turn led to different estimates of total prevalence. In addition, there is no single data set that has information containing incidence and continuance of disability, the key measures needed for the Model. In order to develop the Model, we combined four data sets, which could have created certain biases in our parameters.
  • Adverse selection. Another inherently complex estimation centers on the level of adverse selection. There is considerable debate among researchers regarding the magnitude of adverse selection and its impact on expected costs of a long-term care insurance program. We followed what we believe to be fairly standard actuarial assumptions regarding the magnitude of adverse selection, but acknowledge that different analysts could reach different conclusions.
  • Medicaid interactions. One of the assumptions regarding potential Medicaid savings we used in our model is that the introduction of the new program will not lead to a delay of Medicaid eligibility for any individual. Most states set Medicaid eligibility partly based on income and assets, and the introduction of a long-term care insurance program could delay people from having to use personal savings to pay for this care. Therefore, the program could result in delayed eligibility for Medicaid, leading to higher savings. However, given the complexity of the interactions between income, assets, and Medicaid eligibility, we chose not to address this issue. We instead assumed any individual who would qualify for Medicaid without the long-term care insurance program would continue to qualify with the program.

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