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Dec
09

The Partnership for Long-Term Care

The Partnership for Long-Term Care is a public/private alliance between state governments and insurance companies that was originally funded with $14 million in grants from the nation’s then largest health care philanthropy, the Robert Wood Johnson Foundation. Prior to 2006, the program was operational in Connecticut, New York, Indiana, California and approved in Iowa, but Iowa never fully implemented its Partnership program when the other four states did. Variations of the Partnership were approved in Illinois, Massachusetts and Washington, but the main Partnership activity continued to reside in the original four states until President Bush signed the Deficit Reduction Act of 2005 (DRA) on February 8, 2006.

This landmark legislation made it possible for other states to participate in The Partnership for Long-Term Care. Forty states have chosen to participate as of December, 2012:

Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Florida, Georgia, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Minnesota, Missouri, Montana, Nebraska, Nevada,New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Virginia, Washington, West Virginia, Wisconsin and Wyoming.

The idea of the partnership is to provide a way for the Medicaid program to work together with private long-term care insurance to help those people who are caught in the middle: they can’t afford to pay the cost of the care or even the cost of a long-term care insurance policy with unlimited benefits, yet their assets are too high to qualify for Medicaid to pay their long-term care expenses. Many middle-income workers and retirees find themselves in this position.

Participating insurance companies in the Partnership recognize the needs of these middle-income Americans by providing LTC insurance policies that have built-in consumer protection benefit standards, and participating states cooperate by allowing these policyholders to access Medicaid without spending down their assets almost to poverty level if the insurance benefits run out.

Without the Partnership, people have three choices to pay for long-term care:

  1. Pay for care out of assets and income, which can lead to financial ruin if long-term care costs wipe out savings.
  2. Transfer assets to qualify for Medicaid either to children or other family members or to a trust—either way means losing control of the money and losing financial independence.
  3. Buy a standard long-term care insurance policy which works—unless the policy runs out of benefits or the benefit isn’t enough to cover the cost of care. This can happen because you bought what you could afford, and it turns out not to be enough when you need it. (For example, you couldn’t afford the premium for inflation coverage, you could only afford a one- or two-year benefit period, or you bought a daily or monthly benefit significantly lower than the cost of care in your area and you couldn’t make up the difference at claim time.)

A fourth option is available with the Partnership for Long-Term Care. Now consumers can purchase a state-approved LTCI policy that provides asset protection after the benefits run out. Here’s how it works in Connecticut, Indiana and California with a dollar-for-dollar asset protection model:

  • A special Partnership policy must be purchased from an insurance professional. For every dollar in benefits paid by the policy, a dollar in assets will be sheltered. For example, if a policy pays $100,000 in benefits, and if the Medicaid asset eligibility in your state requires the insured to spend down to $2,000, in this example the insured would be able to qualify for Medicaid when his or her assets reach $102,000, not $2,000. In other words, he or she would get to keep, or “shelter” $100,000 of assets and still qualify for Medicaid to begin paying long-term care expenses if policy benefits are not enough.

New York has two types of Partnership plans.

  1. Dollar-for-Dollar – the same concept as above except the applicant chooses one of two plans: 1.5 years of nursing home benefits and three years of home care benefits paid at 50 percent of the nursing home daily benefit OR two years of nursing home benefits and two years of home care benefits paid at 100 percent of the nursing home daily benefit.
  2. Total Asset Protection – These Partnership plans provide that once benefits are exhausted, the policyholder can qualify for Medicaid regardless of the amount of assets. There are two plans to choose from for this type as well: three years of nursing home benefits and six years of home care benefits paid at 50 percent of the nursing home daily benefit OR four years of nursing home benefits and four years of home care benefits paid at 100 percent of the nursing home benefit. While New York offers two unlimited asset protection plans, this desirable feature only happens after the benefits of the policy have been used up. A danger is that if a daily benefit is chosen which is inadequate for the policyholder’s needs, he or she could exhaust most or all assets paying the difference between the policy’s benefit and the cost of care before the benefits are used up.

For example, in 2013 New York requires new Partnership policy purchasers to purchase a minimum of $265 for the daily nursing home benefit. Long Island averages $390 for a semi-private room. If only the minimum is purchased, the policyholder could easily wind up paying $125 per day or more out of pocket, which amounts to almost $140,000 over the three-year benefit period for nursing home care. Based on the map below provided by The New York State Long-Term Care Partnership, it’s easy to guess that the cost of care, while lower in some regions of New York can easily run as high as $400 per day.

Indiana provides a combination of these two models. The combo plan provides the dollar-for-dollar asset protection, but if the policyholder purchases a benefit maximum that will pay about four years of benefits, the policy will provide total asset protection like the New York option. Since $291,050 represents about four years of benefits at current costs, purchasing a policy that would pay out that much in benefits would qualify for the total asset protection feature in Indiana. (The $291,050 is the 2013 amount and will increase each year to account for inflation.) Here are three possible scenarios to meet the 2013 requirement:

  • a daily benefit of $200 with a four year benefit period, as $200 x 365 x 4 = $292,000;
  • a daily benefit of $270 with a three year benefit period as $270 x 365 x 3 = $295,650; or
  • a daily benefit of $400 with a two year benefit period as $400 x 365 x 2 = $292,000.

The Indiana Partnership maintains a list of agents who have had special Partnership training and publishes the names in a directory for consumers. Call the Indiana Partnership telephone number or access the website listed at the end of this chapter for information on how to be listed in the directory of approved agents.

Massachusetts offers another variation: Medicaid guidelines have to be met as usual so there is no up-front asset protection, but the house is not subject to estate recovery if the policyholder enters a nursing home with a long-term care insurance policy with a minimum daily benefit of $130 and a minimum two-year benefit period. The caution here is to be sure that much in benefits is available at the date of nursing home admission – if a portion of the benefits have been used on other services such as home care, adult day care or assisted living, the protection would not be available. Also, the state could up the minimum and not grandfather policies already purchased, so applicants are well advised to purchase a much higher minimum – $250+, for example.

In all states, your income goes to pay for the cost of care once you qualify for Medicaid. So the Partnership program protects assets, not income. But income is important for three reasons:

  1. If your income is greater than your long-term care costs, you won’t qualify for Medicaid and wouldn’t benefit from a Partnership policy. People in this situation can consider a standard long-term care insurance policy—perhaps with an unlimited benefit maximum.
  2. Income can guide you to a benefit selection. For example, if care averages $200 per day in your area, and you can afford to pay $30 a day from your income, you might purchase a policy for $170 a day for a lower premium than a $200/day policy. (In higher cost areas like New York, Connecticut or California, you would probably be purchasing policies in the $250-300+/day range – the average cost of care in Connecticut, for example, is $370, according to the 2012 MetLife Market Survey of Long-Term Care Costs. Just be careful—if your care costs more than the insurance policy pays in benefits, you will be responsible for paying the additional costs, and don’t forget that drugs and medical supplies are usually billed on top of the room and board charge for facility care. Consider carefully how much you can afford to pay out of your income and insure yourself adequately. The Partnership policies include an inflation benefit for appropriate ages so that inflation doesn’t erode your benefit.
  3. Since you are responsible for paying your premiums, your discretionary income must be sufficient to pay your long-term care premiums and keep your policy in force, although there is a premium waiver if you have a claim. Individuals with income less than $20,000 or couples with incomes less than $40,000 may not have enough discretionary income to purchase long-term care insurance as premium payments may significantly impact their standard of living. If you fall into these income categories, and if you have assets less than $50,000, not counting your house and car, you probably will qualify for Medicaid in a short period of time, and LTC insurance of any type—standard or Partnership—may not be an appropriate purchase for you.

For many people, however, the Partnership LTCI policies offer a wonderful alternative to transferring assets and relying on the government (Medicaid) to pay for their long-term care expenses.

A few points you may be wondering about with the Partnership policies:

Benefit Choices—Benefit choices are the same as for non-Partnership policies, in that there is a daily or monthly benefit, an elimination (waiting) period, a home health care/adult day care benefit level, an inflation feature, and a benefit period/lifetime maximum. You may be surprised to learn that many California and Connecticut Partnership policyholders purchase a lifetime (unlimited) benefit period. They do this because they really don’t intend to access Medicaid, but if for any reason their assets are lowered for reasons beyond their control; i.e. a stock market plunge, they have asset protection provided by their Partnership policy. This is true because at any time benefits paid out equal your assets plus the amount Medicaid (MediCal in California) allows the healthy spouse to keep, the policyholder is allowed to access Medicaid and shelter their assets. For example, if a policy had paid out $250,000, the person receiving care could apply for Medicaid when the couple’s assets are spent down to $367,920, which is equal to the $250,000 in benefits plus $115,920 (the 2013 asset maximum for the healthy spouse) plus $2,000 (the asset maximum for the person needing care). (Indiana and New York have total asset protection after benefits paid equal $291,050 for Indiana for 2013 purchasers and after the three or four-year benefit period for New York is exhausted.)

Portability—If you move to another state, the Partnership policy will pay, and the benefits will accumulate toward your asset protection threshold. All states except California practice reciprocity with the asset protection feature of owning a Partnership policy. You are subject to the functional or cognitive eligibility requirements in the state in which you apply for Medicaid. You can see a Partnership reciprocity map here.

Underwriting—You still must qualify for the Partnership policy medically just as you would for a standard long-term care insurance policy. The younger you are, the better the chance to qualify for a policy, and the lower the premiums. Pre-retirement ages (40’s and 50’s) are strongly encouraged to apply. In fact, the Connecticut Partnership reports that 95% of purchasers in 2011 were under age seventy, and 58% under age 60. The single largest age group of purchasers was 50-59 with 46% of purchasers falling in that age range. The average age for all Partnership purchasers was 57 with an age range of 20-88!

Arbitration—In some states, the Partnership policies have stronger mechanisms for claims appeals than standard long-term care policies. In those states, a rigorous consumer protection appeal process is in place for any Partnership policyholder who disagrees with a benefit determination.

Policy Continuance—If for any reason the Partnership program is discontinued either nationally or in its particular state, all policies will be honored and appropriate benefits paid by the insurance company that issued the policy.

The History of the Original Four Partnership States

The original Partnership states were grandfathered, but the Partnership was halted by the 1993 budget bill (“OBRA” – Omnibus Reconciliation Act of 1993), which said that new states could offer asset protection only during the policyholder’s lifetime. At death, the state was required to seek estate recovery for Medicaid’s payment. This happened because of concern that the Partnership would cause Medicaid utilization to increase, when in fact, the opposite is true. Since the Partnership for Long-Term Care was implemented in the early 90s, only about 535 policyholders out of almost 350,000 policies sold in all four operational Partnership states as of 12/31/11 have had to turn to Medicaid for help after using their long-term care insurance benefits first! (Info available on original Partnership states’ websites.)

The Partnership Expansion Post-Deficit Reduction Act

Partnership policies offered by new states are required to:

  • be tax-qualified
  • Include specific consumer protection requirements of the 2000 National Association of Insurance Commissioners (NAIC) LTC Insurance Model Act and Regulation.
  • provide the inflation benefit as follows:
    • compound inflation is required under age 61
    • some type of inflation benefit must be offered between ages 61 – 76
    • inflation may be offered past age 76 but is not required
  • provide asset protection according to the dollar-for-dollar model, not the total asset protection models like the New York and Indiana Partnerships have. This means the insured may still be subject to estate recovery but only for assets that exceed the amount of benefits received from the Partnership long-term care insurance policy.

The above inflation requirements are just the boiler plate template for states that wish to participate in the Partnership for Long-Term Care. The appropriate inflation protection based on purchase age is an integral part of the whole Partnership concept, which is to expand the LTCI market to middle-income Americans. Without adequate inflation protection, middle-income Americans simply won’t be able to make up a really large gap between the daily or monthly benefit at claim time and the cost of care at that time.

Your financial professional can tell you which inflation options meet your state’s Partnership inflation requirement. Plus, when you get your policy, it will state clearly that it is intended to be a Long-Term Care Partnership policy.  Do not accept a policy without that language if it is your intention to buy a Long-Term Care Partnership policy.

Original Partnership States:

California (916) 552-8990 www.dhs.ca.gov/cpltc
Connecticut (860) 418-6318 www.Ctpartnership.org
Indiana (800) 452-4800 ; (317) 233-1470 www.in.gov/fssa/iltcp
New York (518)-474-0662 www.nyspltc.org
Other States http://www.dehpg.net/ltcpartnership/map.aspx

The above information is an excerpt from my new book, Protecting Your Family with Long-Term Care Insurance, which is due out in January, 2013.  You can also track specific state activity at www.dehpg.net/ltcpartnership