CONTINUING CARE AT HOME (CCaH): THE FINANCIAL AND ACTUARIAL DETAILS - - PowerPoint PPT Presentation

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CONTINUING CARE AT HOME (CCaH): THE FINANCIAL AND ACTUARIAL DETAILS - - PowerPoint PPT Presentation

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2015 NATIONAL SENIOR LIVING CFO WORKSHOP THE PEABODY MEMPHIS 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

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SLIDE 1

CONTINUING CARE AT HOME (CCaH): THE FINANCIAL AND ACTUARIAL DETAILS

2015 NATIONAL SENIOR LIVING CFO WORKSHOP Ι THE PEABODY MEMPHIS Ι MEMPHIS, TN APRIL 15-17, 2015

AV POWELL, MAAA, ASA

Consulting Actuary A.V . Powell & Associates, LLC

S

ARAH LENTZ S PELLMAN, LNHA

Principal, S enior Living and S ervices CliftonLarsonAllen LLP

S

TEVE MAAG

Director, Assisted Living & Continuing Care LeadingAge

B.C. Ziegler and Company | Member of S IPC & FINRA

PRES ENTED BY:

April 16, 2015 Ι 1:15 – 2:30 pm

F ACILITATED BY:

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SLIDE 2

MANAGING CCAH ACTUARIAL & FINANCIAL RISKS

S ection 3

AV POWELL, MAAA, ASA

Consulting Actuary A.V . Powell & Associates, LLC

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SLIDE 3
  • 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

DISCUSSION OUTLINE

22

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SLIDE 4
  • 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

DISCUSSION OUTLINE

23

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SLIDE 5

ANECDOTAL OBSERVATIONS: LIES, DAMNED LIES, AND STATISTICS

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76 79 75 86 87 81 70 75 80 85 90 CCaH n=698 CCRC n=230K CCRC<14 n=48K Entry Age Age at Transfer 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% S ingle Female % Coupled Percent ALU/ S NF Ratio* CCaH CCRC

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SLIDE 6

DO CCAHS SIGNIFICANTLY REDUCE ALU/ SNF USAGE

8.5% 6.1% 0% 5% 10% 15% 20% 25% CCRC mature CCRC maturing CCRC developing CCRC <14yrs x/ temp CCaH <14yrs x/ temp

Health Care Ratio (HCR) incl. Temporary Transfers

ALU/SNF per 100 ILU= 1/(1-HCR)

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SLIDE 7

IS CCAH COST EFFICIENT FOR FUNDING LTC

Statistic (sample size = 1) CCRC CCaH

Low Usage

CCaH

High Usage

  • 1. Lifetime LTC costs

(Unisex; 60% f/ 40% m) $306,765 $176,255 $219,053

  • 2. PV Lifetime LTC costs (3%

inflation/ 5% interest) 151,798 91,934 115,055

  • 3. PV Lifetime LTC costs per

S NF daily cost ($283) 536 days 324 days 407 days

  • 4. PV LTC benefit costs

131,322 65,480 88,302

  • 5. Estimated overhead (incl.

profit) margins {1– (5÷3)} 13.5% 28.8% 23.2% CAVEAT: these projections are based on assumptions derived from limited data; no statistically valid inferences can be made about relationships

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SLIDE 8

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

DISCUSSION OUTLINE

27

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SLIDE 9

0% 5% 10% 15% 20% Yr 01 Yr 02 Yr 03 Yr 04 Yr 05 Yr 06 Yr 07 Yr 08 Yr 09 Yr 10 Yr 11 Yr 12 Yr 13 Yr 14 Yr 15

S ite B Avg EA=74.9 S ite C Avg EA=76.0 S ite D Avg EA=76.6 CCAH S et -A Avg EA=75 CCAH S et -B Avg EA=75

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DOES CCAH UTILIZATION STABILIZE

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SLIDE 10

IS EXPERIENCE SUFFICIENT TO SET ASSUMPTIONS

75% 80% 85% 90% 95% 100% 2003 2005 2007 2009 2011 2013 At-home Homecare AL At-home ALU S NF

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SLIDE 11

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

DISCUSSION OUTLINE

30

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SLIDE 12

2 4 6 8 10 12 14 CCRC CCaH No ADLs Home Care ALU S NF

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CAN “ SUBSTITUTION EFFECT” COSTS BE MANAGED

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SLIDE 13

HOW DO YOU ACCESS RISKS: CCAH VS. CCRC

Program Risk Factor CCaH CCRC Overhead Expenses

+

―

Database S ize for Mortality & Morbidity

―

+

Utilization

―

+

Benefit Unit Costs

≈ ≈

Σ of all Factors

In {PV of Liability} Touted as + Really?

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SLIDE 14

WHICH CONTRACT IS RISKIER— CCAH OR CCRC

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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

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SLIDE 15

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%

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ACTUARIAL RISK DECREASES WITH SIZE

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SLIDE 16

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

DISCUSSION OUTLINE

35

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SLIDE 17

PRICING CAN MEET VIRTUALLY ANY PREMIUM TARGETS

Actuarial Plan Design 5% Margin Lower Usage $400/month 15% Margin Lower Usage $400/month 5% Margin Higher Usage $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

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SLIDE 18

CONTRACT DESIGN EFFICACY TO REDUCE COST/ RISKS

Technique Scale = 1-Low to 5-High 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

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SLIDE 19

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

DISCUSSION OUTLINE

38

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SLIDE 20

ACTUARIAL RESERVES  EXCESS “ PROFIT” MARGINS

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  • 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

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SLIDE 21

($15,000) ($10,000) ($5,000) $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 2015 2020 2025 2030 2035 2040 2045 2050 2055 100% funded 95% funded 90% funded

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5-YR GAAP PROJECTIONS CAN BE MISLEADING

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SLIDE 22

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

DISCUSSION OUTLINE

41

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SLIDE 23
  • 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

RECOMMENDATIONS AND CAVEATS

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