Lessons from 20 Years of Consulting with CCaHs

website: avpowell.com 6255 Barfield Road NE, Suite 102

Atlanta, GA 30328-4332 phone 404.845.0360 fax 404.845.0366

Conducted 3 of 4 RWJF pilot studies Clients include: Legacy design (Type A) programs Alternative design (Type B) programs

Reviewer for MDOA

1

Discussion Overview 1. Contract designs

2. Actuarial model challenges

3. Source data for assumptions

4. Risk management concerns

5. Fiduciary obligations

6. Summary and recommendations

2

Original Design Mimicked Type A 1990 to current

1. Traditional unlimited benefit Co-pay variation Refund options

2. Indemnity benefit with defined limits Annual or lifetime dollar amounts Personal increase Period covered Elimination options

3

Design Options Expanding 2012 to current

1. PACE revenue compatible 2. Early admission; CCRC waiting list 3. Care-coordination only 4. Target market objectives Those who otherwise can’t afford CCRC waiting lists Increasing plan participation census

4

Discussion Overview 1. Contract designs

2. Actuarial model challenges

3. Source data for assumptions

4. Risk management concerns

5. Fiduciary obligations

6. Summary and recommendations

5

Enhanced Actuarial Modeling with 4+ Functional Statuses

Benefit Benefit Trigger, i.e., functional status change

Wellness, fitness, and/or home maintenance services

No supportive services needed, able to live independently

Support services such as companion, home health aide, meals, transportation, adult day care, …

Care coordinator; 1 to 3 ADLs

Personal care and memory support Care coordinator

Nursing care 3 or more ADLs

6

Estimate Member Cost per Day

Benefit Average member benefit per day vs. premiums paid

Wellness, fitness, and/or home maintenance services Negotiated rate—pay monthly premium

Support services such as companion, home health aide, meals, transportation, adult day care, …

$20/hour—not to exceed ALU per diem

Personal care and memory support $104/day—monthly premium waived

Nursing care $259/day—monthly premium waived

7

Overhead Cost Allocations Impact Initial Premiums

1. Care coordination ratios

2. Costs of acquiring contracts, i.e., marketing

3. Amortizing start up costs

4. Who subsidizes slow enrollment?

8

Discussion Overview 1. Contract designs

2. Actuarial model challenges

3. Source data for assumptions

4. Risk management concerns

5. Fiduciary obligations

6. Summary and recommendations

9

Data Sources in Order of Relevance

1. CCaH experience data after 10+ years

2. Long-term care insurance (LTCi)

3. Assessment systems as COLLAGE, …

4. Sister CCRCs (for longevity)

5. Other?

10

CCaH Experience Data is Sparse

Estimated Life Years of Exposure as of Dec 2012 Proprietary Indemnity CCaH>10 yrs CCaH<10 yrs

11

CCaH Institutional Usage is Less, but Are Support Costs Reduced?

0.0

5.0

10.0

15.0

20.0

4.8 6.3

11.5 14.0 15.2

AVP 25th Plan B AVP 50th Plan A AVP 75th

12

Discussion Overview 1. Contract designs

2. Actuarial model challenges

3. Source data for assumptions

4. Risk management concerns

5. Fiduciary obligations

6. Summary and recommendations

13

Risk Management Tools

1. Enrollment criteria 2. Effective care co-ordination 3. Benefit limits; lifetime or annual Costs Inflation Benefit period Elimination period

14

Can Home Care Services Limits Control “Substitution Effect” Costs

0 2 4 6 8 10 12 14

CCRC

CCaH

No ADLs Home Care ALU No ADLS2

15

Your Corporate Risk Profile Dictates Optimal Size

Number of participants

90% conf. int. ± variation in EX[net costs]

Pricing +5% risk premium

Prob[ruin]

Pricing +10% risk premium

Prob[ruin]

8 members (66.8%) to 96.2% 44% 39%

100 members (17.6%) to 18.4% 34% 17%

300 members (9.9%) to 11.4% 25% 6%

500 members (8.9%) to 8.8% 18% 2%

1,000 members (6.5%) to 6.4% 8% <0.5%

16

Discussion Overview 1. Contract designs

2. Actuarial model challenges

3. Source data for assumptions

4. Risk management concerns

5. Fiduciary obligations

6. Summary and recommendations

17

Credibility Context Factors for CCAH Actuarial Assumptions

Statistic Age 65 Age 75 Age 85

Typical lifetime LTC costs (57/43 female/male)* $407,379 $250,085 NA

Lifetime LTC costs (4.0% inflation) 269,486 168,311 115,701

PV lifetime LTC costs (5.5% interest discount) 79,667 71,484 70,118

PV lifetime LTC costs to SNF daily cost ($293) 272 days 244 days 239 days

PV lifetime total costs for CCAH benefits 140,723 113,522 98,081

% of lifetime costs = overhead** 43.4% 37.0% 28.5%

18

5-yr projection in GAAP Feasibility isn't Sufficient

($15,000)($10,000)

($5,000)$0

$5,000$10,000$15,000$20,000$25,000$30,000$35,000

2012 2017 2022 2027 2032 2037 2042 2047 2052

100% funded 95% funded 90% funded

19

Solvency/Sustainability Criteria

1. ASOP#3 wasn’t written for CCaHs, but useful guide 2. Satisfactory actuarial balance is necessary Adequate reserves Adequate cohort fee structure Projected positive cash and investments

3. Liquid reserve accumulation very critical Discontinuation of plan No substantial fixed assets to sell if plan closed

20

Discussion Overview 1. Contract designs

2. Actuarial model challenges

3. Source data for assumptions

4. Risk management concerns

5. Fiduciary obligations

6. Summary and recommendations

21

The Future

1. Select conservative assumptions

2. Collect and regularly analyze benefit utilization

3. Experience rate premiums on a timely basis

4. Collaborate to increase knowledge base

5. AVP—always validating projections

22

Track Relevant Source Data for your Projection Model

Benefit Average member per cost per day

Actual category 1 benefit days times Fee-for-service

Actual category 2 benefit days times 3,300 versus 6,000 $27 versus $20

Actual category 3 benefit days times 750 versus 700 $110 versus $124

Actual category 4 benefit days times 500 versus 450 $200 versus $210

Annually compare aggregate projected benefits costs with actual costs $271,600 versus $301,300

23

Detailed Utilization (and Cost) Tracking for On-going Analysis