As the number of older Americans has grown, so has the need for long-term care. To encourage more people to buy long-term care insurance, states have teamed up with private insurers to develop special long-term care (LTC) policies. These "Partnership" policies combine the features and benefits of traditional LTC insurance with Medicaid asset protection.

Individuals who purchase Partnership policies will be able to protect a portion of their assets should they need to apply for Medicaid after using up their long-term care insurance benefits. Although they must meet other Medicaid eligibility requirements, they will not be required to "spend down" to the same asset levels as those who have not purchased Partnership policies.

Background

In the 1980s, Congress authorized the first long-term care partnership programs in four states: California, New York, Indiana, and Connecticut. The aim of these partnerships was to lessen the financial strain of long-term care on state Medicaid programs by encouraging the purchase of private long-term care insurance, especially by individuals with moderate incomes who may be less likely to buy long-term care insurance and more likely to eventually need to rely on Medicaid. However, the Omnibus Budget and Reconciliation Act (OBRA) of 1993 restricted further development of Partnership programs in other states.

The Deficit Reduction Act (DRA) of 2005 removed the OBRA moratorium and allowed all states the opportunity to implement Partnership programs. Currently, 22 states either have Partnership programs in place or legislation pending for program implementation.

What is a Partnership program?

A Partnership program is a collaboration or "partnership" between a state and private insurance companies selling long-term care insurance in that state. Each state determines if and when it wants to implement a Partnership program, and authorizes insurance companies to develop and sell LTC Partnership policies to state residents.

What is a Partnership policy?

LTC Partnership policies are very similar to traditional (non-Partnership) LTC policies. Although they generally include the same features and benefits, Partnership policies authorized by the DRA must also have certain built-in consumer protections that traditional LTC policies are not required to have (Partnership policies in the original four states are exempt from these requirements).

Dollar-for-dollar asset protection

Partnership policies must include dollar-for-dollar asset protection. Under this model, the amount of assets that are protected from Medicaid spend-down requirements equals the dollar value of the benefits paid by the LTC Partnership policy. For example, you buy a Partnership policy with a lifetime maximum benefit of $150,000. You eventually require long-term care and exhaust your Partnership insurance benefits, but you still need long-term care. If you did not have a Partnership policy, you'd likely have to deplete all of your remaining assets, subject to state exemptions and allowances, before you could qualify for Medicaid. However, because you have a Partnership policy, you can keep $150,000 in assets in addition to any other assets allowed by your state's Medicaid program, and still qualify for Medicaid (assuming you meet income standards and other eligibility requirements), and the state won't seek recovery of those assets from your estate.

Inflation protection

While traditional LTC policies may or may not include inflation protection, all Partnership policies must include age-based inflation protection if purchased prior to age 76. Inflation protection helps policy benefits keep pace with the rising cost of long-term care services.

Partnership policies must be tax qualified

This means that they must meet standards specified by the Health Insurance Portability and Accountability Act (HIPAA). Tax-qualified policy premiums may be deductible as a medical expense if you meet certain requirements (check with your tax professional for details), and policy benefits received are generally not included as ordinary income for federal income tax purposes. Most, but not all, traditional LTC policies are tax qualified.

Where can you find out more?

State Partnerships are still being developed, and will vary from state to state. To find out if LTC Partnership policies are available in your state, contact your state's Department of Insurance or long-term care Partnership office.