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

Transcription

1 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 PRESENTED BY: AV POWELL, MAAA, ASA Consulting Actuary A.V. Powell & Associates, LLC SARAH LENTZ SPELLMAN, LNHA Principal, Senior Living and Services CliftonLarsonAllen LLP FACILITATED BY: STEVE MAAG Director, Assisted Living & Continuing Care LeadingAge April 16, 2015 Ι 1:15 2:30 pm B.C. Ziegler and Company Member of SIPC & FINRA

2 Section 3 MANAGING CCAH ACTUARIAL & FINANCIAL RISKS AV POWELL, MAAA, ASA Consulting Actuary A.V. Powell & Associates, LLC

3 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

4 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

5 ANECDOTAL DEMOGRAPHIC OBSERVATIONS % 80% 70% 60% 50% 40% 30% 20% 10% 70 CCaH n=698 CCRC n=230k CCRC<14 n=48k 0% Single Female % Coupled Percent ALU/SNF Ratio* Entry Age Age at Transfer CCaH CCRC 24

6 DO CCAHS SIGNIFICANTLY REDUCE ALU/SNF USAGE 25% 20% Health Care Ratio (HCR) incl. Temporary Transfers ALU/SNF per 100 ILU= 1/(1-HCR) 15% 10% 5% 8.5% 6.1% 0% CCRC mature CCRC maturing CCRC developing CCRC <14yrs x/temp CCaH <14yrs x/temp 25

7 IS CCAH COST EFFICIENT FOR FUNDING LTC Statistic (sample size = 1) 1. Lifetime LTC costs (Unisex; 60%f/40%m) 2. PV Lifetime LTC costs (3% inflation/5% interest) 3. PV Lifetime LTC costs per SNF daily cost ($283) CCRC CCaH Low Usage CCaH High Usage $306,765 $176,255 $219, ,798 91, , days 324 days 407 days 4. PV LTC benefit costs 131,322 65,480 88, 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 26

8 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

9 DOES CCAH UTILIZATION STABILIZE 25% 20% 15% 10% 5% 0% Yr 01 Yr 06 Yr 11 Yr 16 Yr 21 Years Since First Member Enrollment Site B Avg EA=74.9 Site C Avg EA=76.0 Site D Avg EA=76.3 CCAH PROJ-A Avg EA=76 CCAH PROJ-B Avg EA=76 28

10 IS EXPERIENCE SUFFICIENT TO SET ASSUMPTIONS % 85% 90% 95% 100% At-home Homecare AL At-home ALU SNF 29

11 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

12 CAN SUBSTITUTION EFFECT COSTS BE MANAGED CCaH CCRC No ADLs Home Care ALU SNF 31

13 HOW DO YOU ACCESS RISKS: CCAH VS. CCRC Program Risk Factor CCaH CCRC Overhead Expenses Database Size for Mortality & Morbidity Utilization Lower Benefit Unit Costs Larger Mature Σ of all Factors In {PV of Liability} Undecided 32

14 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

15 ACTUARIAL RISK DECREASES WITH 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% 34

16 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

17 CONTRACT DESIGN EFFICACY TO REDUCE COST/RISKS Technique 1=Less Effective 5=More Effective Costs Risks 1. Initial underwriting Care coordinator gatekeeper Subsidize/transfer overhead Age and gender pricing Contract copayments Benefit daily limits 3 2/3 7. Benefit lifetime limits Elimination periods

18 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 37

19 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

20 ACTUARIAL RESERVES EXCESS PROFIT MARGINS 1. Similar 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 FSO to reflect liability management 39

21 5-YR GAAP PROJECTIONS CAN BE MISLEADING $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $0 ($5,000) ($10,000) ($15,000) 100% funded 95% funded 90% funded 40

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 41

23 RECOMMENDATIONS AND CAVEATS 1. Price with highest market-sensitive actuarial margins 2. Setup benefit utilization and cost monitoring systems 3. Vital benchmark statistic: at-home care cost/member/day 4. Given limited experience, promote plans with lower net cost to organization 42