Long-term care insurance claim patterns are typically characterized by very few claims in the early years of a program and a significantly higher number of claims in the later years. Level premiums develop a relatively high fund balance in the early years when premiums exceed claims and expenses. This relationship reverses in later years. For th
With regard to the form of benefits for the eligibility beneficiaries, the statute states the following (emphasis added): “Cash benefits paid into a Life Independence Account of an eligible beneficiary shall be used to purchase nonmedical services and supports that the beneficiary needs to maintain his or her independence at home or
A Report on the Actuarial, Marketing, and Legal Analyses of the CLASS Program. Reduced Benefit Amounts
According to the statute, benefits are “not subject to any lifetime or aggregate limit.” 35 As private insurance has painfully learned, because beneficiaries have no incentive to preserve their benefits when there is no lifetime limit, unlimited benefit plans are expensive and risky. Most policies with lifetime benefits had significantly unfa
A Report on the Actuarial, Marketing, and Legal Analyses of the CLASS Program. Daily Benefit Amounts and Triggers
At least two and up to six levels of benefits are required for the CLASS plan 32 . We propose two levels of benefits: $50 initial daily benefit at 2-3 ADL deficiencies $60 initial daily benefit at 4+ ADL deficiencies or cognitive impairment. The amounts are chosen to discourage beneficiaries from claiming a higher level of disability than
A Report on the Actuarial, Marketing, and Legal Analyses of the CLASS Program. Summary on Plan Design
Having a competitive CLASS plan also creates an incentive for private insurance to work side-by-side, rather than directly compete, with the CLASS Program. Co-marketing with insurers (discussed below in Marketing Considerations section) should reach more workers and provide a better spread of risk.
The first 5 proposed plans are designed to mitigate the risk for adverse selection to a certain extent. Premiums for some of these plans can be made competitive with private insurance because the expense and profit savings could partially offset the anticipated extra claims. Using comparable plan features, the following preliminary comparison il
A Report on the Actuarial, Marketing, and Legal Analyses of the CLASS Program. Actuarially Sound Plans
The above plan designs are not mutually exclusive. A plan combining these concepts can address the shortcomings of the individual design. According to the statute, the Secretary will present at least 3 actuarially sound plans to the CLASS Independence Advisory Council for review. The Council will recommend one of them to the Secretary for designat
A Report on the Actuarial, Marketing, and Legal Analyses of the CLASS Program. Scheduled Increasing Benefits
This design is similar to the Limited Initial Benefits. If the enrollee qualifies for benefits, it pays a $20 daily benefit if claimed during the 6th years of enrollment. The $20 daily benefit increases by $6.50 each year of enrollment to an ultimate of $150 at the 26thyear and thereafter. The benefit will pay for a maximum of 36 months only. The
A Report on the Actuarial, Marketing, and Legal Analyses of the CLASS Program. Limited Initial Benefits
This plan pays a low benefit (for example, $5 daily) if claimed during the first 20 years and a regular benefit (for example, $50 daily benefit, indexed) otherwise. Because the benefit in the early years is quite low relative to the premiums, the Program may be less attractive to the high risk workers. Thus this approach can moderate adverse selec
This design aims to control the impact of adverse selection through the claim process rather than the enrollment process. Under this design, no benefits will be paid during the first 15 years 27 of an individual’s enrollment if the qualifying ADL (Activities of Daily Living) or cognitive deficiencies can be determined to be the result of a prev
Before discussing Phased Enrollment, it is helpful to review the types of risk mitigation practices typically used in the group long-term care insurance market. Insurers offer group coverage in the workplace with endorsement from the employers. Premiums are usually collected through payroll deduction. For large employee groups of over 500, insurer
At the beginning of the development process, we endeavored to generate a list of all possible designs we could think of. We ranked them into 3 groups: those that do not address adverse selection and have no market appeal, those that address adverse selection but have no market appeal, and those that have both 23 . From the last group, we
A precept of the statute is that no underwriting, other than age, can be used to set premiums or prevent enrollment into the Program. Because the CLASS Program is voluntary, there is a strong potential for the Program to attract a disproportionate number of high risk workers who are likely to need long-term care services. This adverse selection vi
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.
A Report on the Actuarial, Marketing, and Legal Analyses of the CLASS Program. The CLASS Act Statute
Due to the lack of conference reports and other explanatory documents, we effectively relied only on the text of the statute for benefit plan design. The following provisions in the statute have significant influence on benefit plan design:
There is an unmet need to protect working Americans against the high costs 4 of long-term care services 5 . Few of them have financial protection against the significant risk of eventually using the services 6 . This is especially true for workers with modest income who are vulnerable to become future Medicaid beneficiaries.
A Report on the Actuarial, Marketing, and Legal Analyses of the CLASS Program. Purpose and Disclosure
This report describes our development of the proposed CLASS benefit plans in the Office of CLASS. It is written for the general audience with a basic knowledge of the CLASS Act 1 . The CLASS Office was given the task to develop benefit plan alternatives that are:
A Report on the Actuarial, Marketing, and Legal Analyses of the CLASS Program. Appendix O: Actuarial Report on the Development of CLASS Benefit Plans
for Kathy Greenlee Assistant Secretary for Aging Administration on Aging Bob Yee, FSA, MAAA CLASS Office Chief Actuary Department of Health and Human Services Robert.Yee@hhs.gov Gregory Kissel, ASA, EA, MAAA Senior Actuary Office of Personnel Management Greg.Kissel@opm.gov September 20, 2011
A Report on the Actuarial, Marketing, and Legal Analyses of the CLASS Program. Appendix Nd: Presentation Entitled "Comments on 'the Long-Term Care Policy Simulator Model'"
Comments on “The Long-Term Care Policy Simulator Model” Richard W. Johnson Urban Institute CLASS Act Models Meeting September 22, 2010 What Does Avalere LTC Policy Simulator Model Say About CLASS?