A Report on the Actuarial, Marketing, and Legal Analyses of the CLASS Program. Summary of Avalere Health’S Revised Long-Term Care Policy Simulator

10/14/2011

Avalere Health’s Revised Long-Term Care Policy Simulator (LTC-PS) is an Excel-based model that tracks age-specific groups of CLASS program enrollees for 75 years (see Appendix M for an in-depth description of the model). The LTC-PS builds off a long-term care premium calculator originally developed under a grant from The SCAN Foundation. ASPE contracted with Avalere Health in the fall of 2010 to expand the capacity of the original model to incorporate key features of the CLASS program and a wider set of assumptions.

The basic approach to estimating premiums is similar to ARC’s Long-Term Care Premium Model in that the present value of total expected costs of the program (including administrative costs) must equal the present value of total expected income (premiums plus interest on accumulated reserves). The estimated premium represents the average premium required in the initial year for each age of enrollment to accomplish an actuarially balanced model. The model estimates the impact on premiums of different benefit triggers and benefit amounts, program enrollment rates, low-income premium subsidies, and various benefit structures (including cash vs. service reimbursement).

The model incorporates adverse selection through an approach that is a hybrid of that used in the ARC model. Specifically, the LTC-PS estimates the number of people by age that will develop a severe disability over the next five years, and given a rate of assumed overall participation in the program, compares the number of people that would enroll in the program against the total estimated incidence of disability for the entire eligible population over the next five years. Under a pure adverse selection scenario, the model assumes that all people who would develop a severe disability will enroll in the program; this is similar to the ARC “first-in” method. However, because perfect adverse selection is unlikely to occur, the model builds in several factors that dampen the impact of adverse selection at initial enrollment and over time.

The LTC-PS uses many of the same sources of data as the ARC Long-Term Care Premium Model. For example, the model bases key economic and demographic assumptions on the 2011 OASDI Trustees Report, and uses data from the NNHS and NLTCS on the older population with disabilities, both living in the community and institutions. However, unlike the ARC model that relies on the CPS and NHIS for labor force participation and core disability data, the LTC-PS uses the American Community Survey and the Survey of Income and Program Participation.

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