A Report on the Actuarial, Marketing, and Legal Analyses of the CLASS Program. Volume Illustration

10/14/2011

Without a designated plan and a specific marketing strategy, it is premature to project volume for the CLASS Program. However, it would be useful to understand the financial implication of various scenarios.

We constructed a simplified model for this exercise. The model divides the current working population by size of employee groups. It assumes certain penetration rates by group size over a 10-year period based on the differences between expected ultimate penetration rates and current penetration rates. The expected ultimate penetration rates are based on other lines of voluntary insurance such as life and disability income insurance. The current penetration rates are based on private long-term care insurance data. From the penetration rates, enrollments are projected over a 10-year period. The model also contains assumptions regarding premium rates, expenses, benefits, investment returns and persistency. With these assumptions, we generated financial results for the first 10 years of the CLASS Program.

We developed results for 3 volume scenarios: minimum, expected and optimistic. In the minimum scenario, we solved for the minimum number of enrollments so that the Program is self-supporting by covering the cost of the CLASS Office staff and other expenses. The optimistic scenario depicts what may happen in an ideal market environment. The expected scenario is what may happen with a reasonable marketing effort but with no change to the current market environment.

    Minimum   Expected Optimistic
Number of Enrollees 124,000   2,137,000     14,018,000  
% of Work Force 0.1% 1.5% 10.1%
Fund @ End of 10 years ($B)   $0.6 $11.8 $66.3

The projected fund balance for the optimistic scenario is close to the Congressional Budget Offices’ (CBO) $72 billion estimate48. The CBO’s estimate was based on a $123 average monthly premium. In contrast, all 3 scenarios assumed an $80 average initial monthly premium. The optimistic scenario is possible, for instance, if there are cuts in Medicaid and Medicare long-term care benefits coupled with a tax incentive to encourage CLASS participation.

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