What is PDRP Plus?

PDRP Plus is a computer system that produces probability distributions for health care costs, including long-term care, prescription drug and “regular” (co-pays, deductibles, etc.) health care costs for retiring clients (either single persons or couples) aged 55 to 75.  If desired, PDRP Plus uses these health care costs along with many other aspects of a client’s financial situation to produce comprehensive financial analyses, including computations of the probability that the client will outlive assets, safe withdrawal rates and many other computations. 

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PDRP Plus also is useful for a wide range of other applications, including whether certain financial instruments should be considered by clients (reverse mortgages, deferred income annuities and others), spending strategies, whether long-term care insurance or riders should be considered, how a prospective long-term care insurance policy being developed will perform from the viewpoint of purchasers, and others. 

PDRP Plus uses state-of-the-art actuarial techniques to perform its calculations.

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How is PDRP Plus “run”?

For most applications, Jack P Paul Actuary, LLC does the computations and delivers reports.  However, there are two current exceptions – one, there is a “hands-on” version for retirement planners to use for long-term care costs in the production of retirement plans.  This is a basic version, lacking some features of PDRP Plus.  More information and a lease can be obtained for retirement planners by visiting www.pdrpplus.com.

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Also, there is the option for insurance companies that employ a field force that does retirement planning to have a system to produce some or all of the features of PDRP Plus for the use of the field force.  The system would be customized to the company’s product portfolio and specific needs and would be run by the company and field force.  Jack P Paul Actuary, LLC would work closely with the company to develop the product.  More information can be obtained by using the contact form at the bottom of this page.

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How much does PDRP Plus cost?

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It depends on the application.  For the “hands-on” version of long-term care costs, a one-year lease is $189.  For insurance company agents to use as described in the previous question, the cost depends on the amount of customization required as well as the number of retirement planners.  Work is charged at a rate of $235 per hour plus a charge per retirement planner.

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What is a probability distribution (in simple terms) and how does PDRP Plus use probability distributions to express retiree future long-term care and other health care costs?

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Simply, a probability distribution is a display of the different ranges of outcomes, along with the chance of each outcome occurring.  For the simple example of a tossed coin, there are two outcomes, heads and tails.  The chance of heads occurring is 50%, and the chance of tails occurring is 50%. 

In PDRP Plus, the probability distribution expresses the chances that the present value of future costs will be less than or equal to certain amounts.  For example, a probability distribution might say that there is a 30% chance that the total present value of future costs will be less than $60,000, a 40% chance that the present value will be less than $76,000, and so on, with a 99.5% chance that the present value of costs will be less than $1,400,000.  Yes, the costs can reach these high amounts (but there is only a very small chance of them occurring).

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How does the lifespan of clients affect these probability distributions?

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The potential lifespan affects the distributions a great deal.  PDRP Plus, unlike most other retirement planning systems, assumes that death can occur at any time.  A person who is healthy can die early or live a long life.  If the life is long, there will be much greater chances of high health care costs, as much of long-term care costs happen at advanced ages.  Assuming a fixed age at death, equal to the expected lifespan, will miss incorporating much of the health care costs which occur at ages above the mean life expectancy.  Also, assuming a fixed age at death of a high age, such as 95, will overstate the costs, because the fact that death can occur before that age is ignored.  The only accurate way to calculate health care costs is to assume that death can occur at any time.

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Why even use a probability distribution?  Why not just assume a three year nursing home stay at age 80?

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Probability distributions are critical because there is no way to accurately predict the timing or venue of future long-term care costs.  To do so is to make a guess, which is a gross simplification of this complex issue.  The best that can be done is a probability distribution, which displays the real total risk of health care costs, and allows a rational, well-thought out approach on how to deal with the costs. 

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What can be included in the probability distributions?

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The distributions can include insurance, including long-term care insurance and riders, Medicare Parts A, B and D and Medicare Supplement Insurance.  This capability allows the evaluation of a prospective long-term care insurance purchase, taking into account the full range of possible future events along with the probabilities of these future events, giving the retirement planner and clients a full unbiased view of the benefits/limitations of the policy.  In addition, a supplemental report is available that analyzes costs with and without the insurance, providing unique information that is very useful in the understanding and decision processes.

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Are the probability distributions individualized?

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Yes!  The individual life expectancy (an input item) is used (PDRP Plus assumes death can occur at any time, but the client’s life expectancy is used to “normalize” the probabilities of death at any age).  Also the long-term care classification and the number and types of chronic conditions the retiree has are also incorporated into the distributions.  The distributions are not “one size fits all”!

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What items are used in the preparation of comprehensive retirement plans besides the information used in the probability distributions?

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Many items, including the client’s:

Asset portfolio

Investment/reinvestment/disinvestment strategies

Income, including Social Security Income

Liabilities

Expenses and spending strategies

Estate plan

Tax attributes

Goals, including the goal of not outliving assets

Long-term care plan, if needed (semi-private/private rooms; 24 hour home care?, etc.)

Desired inheritance

Chronic conditions

Insurance and annuities in-force

Reverse mortgages

And more.

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Who created PDRP Plus?

 
PDRP Plus was created by Jack P Paul Actuary, LLC.  Jack Paul, President is a Fellow of the Society of Actuaries.  He has three designations from the American College of Financial Services - ChFC, CLU and CASL.  Jack has over 35 years of experience in the insurance and financial services industries.  More information can be found on this website.

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What if I have more questions?

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Please look over the rest of this website.  Also, please contact Jack P Paul Actuary, LLC using the contact form on the bottom of any website page.

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