2015 NATIONAL SENIOR LIVING CFO WORKSHOP Ι THE PEABODY MEMPHIS Ι MEMPHIS, TN APRIL 15-17, 2015 CONTINUING CARE AT HOME (CCaH): THE FINANCIAL AND ACTUARIAL DETAILS PRES ENTED BY: F ACILITATED BY: AV P OWELL , MAAA , ASA S ARAH L ENTZ S PELLMAN , LNHA S TEVE M AAG Consulting Actuary Principal, S enior Living and S ervices Director, Assisted Living & A.V . Powell & Associates, LLC Continuing Care CliftonLarsonAllen LLP LeadingAge April 16, 2015 Ι 1:15 – 2:30 pm B.C. Ziegler and Company | Member of S IPC & FINRA
S ection 3 MANAGING CCAH ACTUARIAL & FINANCIAL RISKS AV P OWELL , MAAA , ASA Consulting Actuary A.V . Powell & Associates, LLC
DISCUSSION OUTLINE 1. What do we know about utilization and costs 2. How will you handle CCaH institutional needs 3. Key actuarial and financial risks 4. Contract design options that mitigate risks 5. Potential CCRC financial benefits 6. Recommendations and caveats 22
DISCUSSION OUTLINE 1. What do we know about utilization and costs 2. How will you handle CCaH institutional needs 3. Key actuarial and financial risks 4. Contract design options that mitigate risks 5. Potential CCRC financial benefits 6. Recommendations and caveats 23
ANECDOTAL OBSERVATIONS: LIES, DAMNED LIES, AND STATISTICS 90 90% 87 80% 86 70% 85 60% 81 50% 79 80 40% 76 30% 75 75 20% 10% 70 0% CCaH CCRC CCRC<14 S ingle Coupled ALU/ S NF n=698 n=230K n=48K Female % Percent Ratio* Entry Age Age at Transfer CCaH CCRC 24
DO CCAHS SIGNIFICANTLY REDUCE ALU/ SNF USAGE Health Care Ratio (HCR) incl. Temporary Transfers 25% ALU/SNF per 100 ILU= 1/(1-HCR) 20% 15% 10% 8.5% 6.1% 5% 0% CCRC CCRC CCRC CCRC <14yrs CCaH <14yrs mature maturing developing x/ temp x/ temp 25
IS CCAH COST EFFICIENT FOR FUNDING LTC CCaH CCaH Statistic (sample size = 1) CCRC Low Usage High Usage 1. Lifetime LTC costs $306,765 $176,255 $219,053 (Unisex; 60% f/ 40% m) 2. PV Lifetime LTC costs (3% 151,798 91,934 115,055 inflation/ 5% interest) 3. PV Lifetime LTC costs per 536 days 324 days 407 days S NF daily cost ($283) 4. PV LTC benefit costs 131,322 65,480 88,302 5. Estimated overhead (incl. 13.5% 28.8% 23.2% (5 ÷ 3)} profit) margins {1– CAVEAT: these projections are based on assumptions derived from limited data; no statistically valid inferences can be made about relationships 26
DISCUSSION OUTLINE 1. What do we know about utilization and costs 2. How will you handle CCaH institutional needs 3. Key actuarial and financial risks 4. Contract design options that mitigate risks 5. Potential CCRC financial benefits 6. Recommendations and caveats 27
DOES CCAH UTILIZATION STABILIZE 20% 15% 10% 5% 0% Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 S ite B S ite C S ite D CCAH S et -A CCAH S et -B Avg EA=74.9 Avg EA=76.0 Avg EA=76.6 Avg EA=75 Avg EA=75 28
IS EXPERIENCE SUFFICIENT TO SET ASSUMPTIONS 2003 2005 2007 2009 2011 2013 75% 80% 85% 90% 95% 100% At-home Homecare AL At-home ALU S NF 29
DISCUSSION OUTLINE 1. What do we know about utilization and costs 2. How will you handle CCaH institutional needs 3. Key actuarial and financial risks 4. Contract design options that mitigate risks 5. Potential CCRC financial benefits 6. Recommendations and caveats 30
CAN “ SUBSTITUTION EFFECT” COSTS BE MANAGED CCaH CCRC 0 2 4 6 8 10 12 14 No ADLs Home Care ALU S NF 31
HOW DO YOU ACCESS RISKS: CCAH VS. CCRC Program CCaH CCRC Risk Factor ― + Overhead Expenses ― Database S ize for + Mortality & Morbidity ― + Utilization ≈ ≈ Benefit Unit Costs Σ of all Factors Touted as + In {PV of Liability} Really? 32
WHICH CONTRACT IS RISKIER— CCAH OR CCRC 1. Lower cost does not imply lower risk 2. Timing of costs may vary, but… 3. Pricing = actuarial present value has same Pr{ruin} 4. Adding a risk premium lowers that probability 33
ACTUARIAL RISK DECREASES WITH SIZE 90 % conf. int. Pricing +5% Pricing +10% Number of ± variation in risk premium risk premium participants EX[net costs] Prob[ruin] 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% 34
DISCUSSION OUTLINE 1. What do we know about utilization and costs 2. How will you handle CCaH institutional needs 3. Key actuarial and financial risks 4. Contract design options that mitigate risks 5. Potential CCRC financial benefits 6. Recommendations and caveats 35
PRICING CAN MEET VIRTUALLY ANY PREMIUM TARGETS Actuarial 5% Margin 15% Margin 5% Margin Lower Usage Lower Usage Higher Usage Plan Design $400/month $400/month $400/month No Co-Pay $43,465 $52,465 $66,250 7-yr Limit $36,129 $44,559 $58,222 25% Co-Pay $31,561 $40,754 $48,631 50% Co-Pay $14,350 $23,543 $25,555 Homecare Only $735 $9,928 $11,082 1-yr Elimination $8,190 $11,253 $19,237 36
CONTRACT DESIGN EFFICACY TO REDUCE COST/ RISKS Scale = 1-Low to 5-High Technique Costs Risks 1. Initial underwriting 5 5 2. Care coordinator gatekeeper 4 3 3. S ubsidize/ transfer overhead 5 3 4. Age and gender pricing 1 2 5. Contract copayments 4 2 6. Benefit daily limits 3 2/ 3 7. Benefit lifetime limits 3 3 8. Elimination periods 4 4 37
DISCUSSION OUTLINE 1. What do we know about utilization and costs 2. How will you handle CCaH institutional needs 3. Key actuarial and financial risks 4. Contract design options that mitigate risks 5. Potential CCRC financial benefits 6. Recommendations and caveats 38
ACTUARIAL RESERVES EXCESS “ PROFIT” MARGINS 1. S imilar to other advance fee contracts a. Cash flows should be positive b. Favorable ratios for consolidated GAAP, but c. Performance obligation accounting may change net income presentation 2. Annually generate 30-year cash flows, or 3. Modify income statement to include an expense line item “ change in actuarial FS O” to reflect liability management 39
5-YR GAAP PROJECTIONS CAN BE MISLEADING $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $0 2015 2020 2025 2030 2035 2040 2045 2050 2055 ($5,000) ($10,000) ($15,000) 100% funded 95% funded 90% funded 40
DISCUSSION OUTLINE 1. What do we know about utilization and costs 2. How will you handle CCaH institutional needs 3. Key actuarial and financial risks 4. Contract design options that mitigate risks 5. Potential CCRC financial benefits 6. Recommendations and caveats 41
RECOMMENDATIONS AND CAVEATS 1. Price with highest market -sensitive actuarial margins 2. S etup benefit utilization and cost monitoring systems 3. Vital benchmark statistic: At-Home Costs/ Member/ Day 4. Given limited experience, promote plans with lower net cost to organization 42
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