A Report on the Actuarial, Marketing, and Legal Analyses of the CLASS Program. What CLASS Is Not

10/14/2011

The statute explicitly contemplates an actuarially sound plan that “maximizes the probability of long-term sustainability”. Thus it would appear that, if a designated plan exists at all, it will unlikely be an entitlement program.

Similar to social insurance such as Social Security and Medicare, the CLASS Program is administered by the federal government, the benefits and eligibility criteria are established by statute, the accounting of income and expenses is through a trust fund (CLASS Independence Fund) and premiums are paid by the participants. Nevertheless, major distinctions exist between social insurance and the CLASS Program. Participation in social insurance is either compulsory or it is heavily subsidized so that the majority of eligible individuals choose to participate. Social insurance is generally not fully funded in that monies are not set aside to ensure that all future promises will be met. CLASS is voluntary and the majority of the eligible workers are not expected to enroll. It is fully funded by premiums collected from the enrollees, except for the initial program start-up costs.

In certain aspects, CLASS is closer to private insurance than social insurance. Both private insurance and CLASS are fully funded by premiums. Both call for margins in the premiums to protect from a certain level of unfavorable experience17. The CLASS trust fund acts like a reserve fund for private insurance; both funds are backed by the credit-worthiness of the insuring entities.

In order to be competitive with private insurance, one perceived gap between CLASS and private long-term care insurance may need to be narrowed. That is, benefits in private insurance are contractual; they can be altered only if the insurer is insolvent. This is not the case in the CLASS Program. However, we believe a hierarchy could possibly be established to adjust premiums and other factors first before adjusting benefits.

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