The Partnership is a potential additional back-end safety net to reward middle-class people who buy LTCi.
Prior to the Deficit Reduction Act, Partnerships for long-term care insurance were available only in CA, CT, IN, and NY. Those experimental programs continue to be somewhat different than the Partnership programs in other states. If you are interested in CA, CT, IN, and NY, please contact us.
The most unique Partnership aspect is that the state and federal governments allow people with Partnership LTCi policies to access Medicaid more easily and to protect some assets from possible recovery by Medicaid. Medicaid disregards $1 of assets when determining Medicaid eligibility for each $1 of Partnership LTCi benefits paid by an insurer. Furthermore, Medicaid, by law, is required to recover its costs from the estate of the recipient of its services; a variety of temporary exemptions exist, but the Partnership can provide a PERMANENT exemption. The states offer this incentive to purchase LTCi because they know that people who have LTCi are not likely to need Medicaid. Their LTCi, income and assets are likely to be sufficient to cover their needs.
Highlights of the new State Partnership provisions (OUTSIDE of CA, CT, IN and NY):
- As noted above, each $1 of Partnership LTCi benefits paid by an insurer protects $1 of assets when determining Medicaid eligibility and upon estate recovery. This is known as “Asset Disregard” or “Asset Protection”. This does NOT mean the person could automatically go on Medicaid.
- If their countable assets exceed the amount of Asset Disregard they earned (plus normal state allowances), they must “spend down”. If their estate has assets in excess of their amount of Asset Disregard (plus normal state limits), the state must recover its Medicaid LTC expenditures against those excess assets.
- Furthermore, nearly all of their income must be used for their LTC. Partnership programs do NOT protect income. Therefore if their income can cover their LTC costs, they can’t go on Medicaid.
- So it does not help wealthy people, but is great for the middle class.
Normal Medicaid rules still apply. Therefore:
- If their home equity exceeds $500,000 (in some states, $750,000), they don’t qualify for Medicaid.
- If they live in what is called an “income cap” state and their income exceeds that cap, they generally have to create a “Miller Trust” to qualify for Medicaid.
- Medicaid will only cover “Medicaid-eligible” benefits. So they might have to change provider to receive Medicaid benefits.
- These are just some of the subtleties. Medicaid can change at any time and is frequently changing in one state or another. I don’t profess to be a Medicaid expert.
- Asset disregard is granted by the state where the insured bought the policy. The insured does not have to continue to reside in that state but must have been a resident at the time of issue. Other states generally honor the asset disregard at this time (as of December 3, 2012, CA is the only state with a Partnership program which does not honor asset disregard from other states’ policies), but states have the right not to honor asset disregard attributed to coverage issued in another state. The policy’s LTCi benefits, of course, are guaranteed to extend to any of the 50 states and DC, but asset disregard, while likely to apply in other USA jurisdictions, is not guaranteed.
- Only tax-qualified policies qualify (which is not a big issue because 99% of all policies sold –and 100% of our sales — are tax-qualified).
- 5% level premium automatic compound benefit increases is a “safe harbor”. That is, all tax-qualified policies sold with that provision will qualify. More specifically, below issue age 61 requires level premium compound annual inflation protection (definition varies by state) and for ages 61-76 must have some form of level premium inflation protection (i.e., simple increases; definitions vary by state). Above age 76, no benefit increase feature is necessary.
As a result of LTCi, states not only save Medicaid benefits, they save a lot of Medicaid-related expenses. Because people with LTCi are unlikely to go on Medicaid, the state saves the cost of qualifying the person for Medicaid, sending out Medicaid payments and doing estate recovery. State and Federal governments also get income from premium taxes paid by insurers and income tax paid by insurers, brokers, general agents, providers (because they get private pay rates), providers’ staff (if providers pay more in salaries) and provider payroll taxes.
In states which do not yet have Partnership policies for sale (AK, HI, IL, MA, MI, MS, NM, UT, VT, nor in DC), people should buy now, not waiting for the Partnership. They are younger and healthy now.
*DE may be close to having a Partnership as its Medicaid State Plan Amendment has been approved.
The Partnership target market is the middle class. Teachers, government workers, non-profit workers, and union workers and their families are among likely prospects. In the sales process, some people will not be interested in the Partnership. I do not feel it is necessary to explain the Partnership to wealthy people; you might simply refer to it at delivery, acknowledging that they may not care about it. For less wealthy people, it may be best to use a simple sales process that does not mention the Partnership. You can then explain the Partnership as an additional advantage when you deliver the policy. Of course, if it helps the sales process, it is advisable to explain it.
The Partnership can be particularly appealing with a small monthly maximum for people who think:
- I can’t afford to pay for a nursing home and I can’t afford to buy an insurance policy which would cover the cost of a nursing home.
- I want to stay at home as long as possible, but I don’t want to be a burden on my family.
- A policy that would pay for a home care provider to come in 4 hours every day or 4 hours every other day would be a godsend.
- Then, if I have to go into a nursing home at some point-in-time, Medicaid can put me wherever they want.
- It is even more attractive that, if I do end up having to go on Medicaid, such a policy would allow me to pass some of my assets on to my family rather than having to spend them all for my care.
Such a person might like to buy a policy that would reimburse up to $3000/month (perhaps even less) for up to 3 years (more or less).
Some people/brokers design policies to have a maximum benefit equal to the amount of future assets a client will presumably want to protect. Note: assets which are protected when the first spouse death occurs are NOT necessarily protected for the second spouse. Thus, shared care may be less attractive for people attracted to the Partnership asset protection benefits.
Asset disregard is the likely not the most important reason people buy LTCi. The most important reason is to secure quality care, making sure that commercial care is obtained when appropriate and that optimum care is received by balancing family and commercial caregiving. People do not want to burden their family. They want to assure access, retain control and dignity and stay at home
The following comments should help you help your clients understand the potential value of LTCi for them.
- The Partnership programs demonstrate that the government does not intend to pay for LTC; instead it will reward personal responsibility.
- Everyone has or hopes to build a nest egg. LTCi protects that nest egg. If LTCi is used up, Medicaid may be available, if desired, while protecting some assets. It is a safety net from the government at no cost to client.
- Everyone benefits by encouraging LTCi because everyone benefits from the improved state budget.
- If someone is less affluent and is trying to protect assets, “short and fat” policies are appropriate. That is, the daily benefit is high enough to cover the cost of their care (perhaps with some income), but may reflect the fact that they are not likely to use the most expensive facilities. The benefit period tends to be short and may be based on the amount of assets they’d like to protect. The elimination period (EP) typically should be short also; otherwise during the EP, they may spend assets they want to protect. Level premium compound benefit increases are critical (probably 5% compound increases is preferable).
- We have a nice Partnership mailer and Partnership brochure that can be used for various lead generation efforts. Each is state-specific and broker-specific.
This detailed numerical example of how asset protection works explains in more detail. (The example is not warranted; it is intended as general education.)
(As noted, Target Insurance Services doesn’t provide expertise on Medicaid). Contact an elder law attorney if you want to understand the precise workings of Medicaid CURRENTLY. However, remember that NO ONE, not even such attorneys, knows how Medicaid will work in the future.
Most states have responded to the DRA by requiring people to take 8 hours of LTCi training before selling LTCi and 4 hours every two years thereafter. This applies to both traditional LTCi and combo/hybrid products in many states. These training hours count toward general insurance continuing education requirements, hence do not need to increase time committed to education. We also have solutions for people who do NOT want to commit to such training.
Please see our Certification and Licensing article for more information.
Note: different training rules apply in some states.