Long-Term Care Partnership Programs

 In the last several chapters, we have examined long-term care insurance and learned about the advantages it offers. But what if a person does not buy an LTCI policy? If she needs long-term care, she must use her income, savings, and assets to pay for it, and if she needs care for a long time, she could exhaust these resources. Then she may have no other recourse than to apply for Medicaid. We have discussed the disadvantages to the individual of this situation, but it also presents a problem for the government -- the more people who rely on Medicaid, the greater the financial burden on this already strained program.

Thus, state governments have much to gain from encouraging individuals to provide for their long-term care needs by means of LTCI coverage. States have sought to do this in several ways, including offering tax incentives, targeting education and awareness programs toward consumers and employers, and sponsoring LTCI coverage for state employees and retirees. Another approach is long-term care partnership programs, and this is the focus of this chapter and those that follow.

What Is a Partnership Program?

In the course introduction , we briefly described the basic concept of partnership programs. A state long-term care partnership program is a program under which a state government modifies its Medicaid eligibility rules give a financial incentive for the purchase of LTC I policies that meet certain requirements, called partnership LTCI policies. The purpose is to increase the number of people covered by private long-term care insurance and so reduce the number who end up relying on Medicaid. The word "partnership" refers to the collaboration between the public sector (state government) and the private sector (insurance companies) in funding long-term care needs.

 A partnership program works in this way: An individual purchases an LTCI policy meeting the requirements of his state's program. Usually, if he needs long-term care the benefits of the policy pay for it and the state Medicaid program does not have to cover the cost. However, in the event that he needs long-term care for such a long time that he uses up the benefits of his LTCI policy and is forced to apply to Medicaid, he is not obligated to spend all the assets he otherwise would. Generally, under what is called the dollar-for-dollar approach, he may keep assets equal in amount to the benefits he received under his partnership policy (in addition to any other assets he would have been entitled to keep). Moreover, these assets are exempt from Medicaid estate recovery and so are preserved for his heirs.

Susan does not purchase long-term care insurance. She develops a physical impairment and needs Long-term care services. Before she can qualify for Medicaid, she must spend all her assets on care except for $2,000 (her states asset eligibility limit) and a few noncountable assets. And when she does receive Medicaid benefits, she must enter a nursing facility instead of staying at home because her state provides only very Limited benefits for home care. Furthermore, the nursing home of her choice does not have any Medicaid beds available, so she must go to a Less desirable facility far from her family. Finally, after she dies any remaining assets are taken by Medicaid under the estate recovery rules.

John purchases an LTCI policy meeting the requirements of his states Long-term care partnership program. He becomes physically impaired and needs Long-term care services. Instead of spending his savings and assets on care until he has very Little Left in order to qualify for Medicaid, John uses his LTCI benefits to pay for most of his care. This is better for John, as he does not become impoverished, and he does not have to deal with the limitations of Medicaid coverage. (He can be cared for at home, and if he does eventually have to enter a nursing home, he has a wide choice of facilities.) This is also better for the state, as it does not have to pay for John's care.

Kevin also purchases a partnership LTC I policy, becomes impaired, and receives benefits from the policy. But he needs care for several years, and he eventually uses up his policy's $200,000 lifetime maximum benefit. He is now forced to apply for Medicaid. However, because he bought the partnership policy, he does not have to spend all the assets he otherwise would have. In addition to any noncountable assets and the $2,000 of countable assets his state allows him to keep, Kevin can retain $200,000, the amount he received in benefits from his partnership policy. Moreover, this $200,000 is protected from Medicaid estate recovery and preserved for Kevin's heirs.

Clearly, partnership policies offer significant advantages to consumers. They may be of particular value to those who are unable to afford a large amount of LTCI coverage but have significant assets they want to protect.

Emily has a limited income, but she has some assets she would like to pass on to her son Ted. She cannot afford an LTCI policy with a large lifetime maximum benefit that would cover all her likely long-term care needs, but for a fairly low premium she can buy a partnership policy with a $100,000 maximum. She might not need more than $100,000 in benefits, but if she does, she can apply for Medicaid, and $100,000 of her assets will be protected and preserved for Ted.

An individual in these circumstances can even tailor the lifetime maximum to the amount of assets he wants to protect -- if, for instance, he wants to protect $150,000, he buys a partnership policy with a $150,000 lifetime maximum. In this way partnership policies offer an incentive to those of modest means to buy at least a small amount of LTCI coverage.

However, partnership policies have their limitations. To mention only two of the most important, if a person exhausts his insurance benefits, it is not guaranteed that he will qualify for Medicaid, and if he does qualify, although some assets are protected, he must generally spend his income on care. These and other disadvantages are discussed in detail later in this course.

The Original Partnership Programs

Partnership programs began in 1988, when the Robert Wood Johnson Foundation sponsored demonstration projects in four states, California, Connecticut, Indiana, and New York. These projects received financial grants from the foundation to foster the growth of long-term care insurance in general and to develop partnership programs in particular. The participating states were also granted approval by the U.S. Department of Health and Human Services (HHS) to modify their Medicaid eligibility rules to make such programs possible.

 These four demonstration projects became permanent programs, and other states became interested in establishing programs of their own. But the federal Omnibus Budget Reconciliation Act of 1993 (OBRA 93) effectively halted the expansion of partnership programs. Under OBRA 93 any new programs would be required to apply estate recovery to protected assets --  that is, an individual with a partnership policy could retain assets as long as he remained living, but those assets would have to be taken by Medicaid after his death and could not be preserved for heirs. (The four state programs already in place at that time were exempted from this rule and could continue to offer protection of assets after death.)

 This rule, of course, made participation in a partnership program much less attractive for consumers, and consequently no new state programs were established for many years. However, the Deficit Reduction Act (DRA) of 2005 lifted this restriction, and as a result many states are currently establishing partnership programs. We will examine in detail the DRA and the new partnership programs, but first we will look at the original programs, which have continued to operate.

The Four Original State Programs

We offer here a brief overview of the four original state partnership programs. For complete information, the reader should check with each state program.

All four of the original states require that partnership policies:

be federally tax-qualified,
include automatic 5 percent annual compound inflation protection (in New York there is an exception for purchasers over 80 years old), and
provide comprehensive benefits (coverage of both facility care and home care).

The four states also require partnership policies to have a daily benefit of at least a certain amount; this minimum varies by state and is adjusted annually. Each state also has various other requirements.

All four state programs offer the dollar-for-dollar approach to asset protection, as described above and illustrated in the example of Kevin. Indiana and New York also offer as an alternative the total asset approach, which allows an individual with a partnership policy to keep all his assets, not just an amount equivalent to the LTCI benefits he receives. However, for a person to qualify for total asset protection in these two states, his policy must provide at least a certain amount of benefits.

 Connecticut and Indiana have a reciprocity agreement, under which a resident may buy a partnership policy in one state, move to the other state and apply for Medicaid there, and receive dollar-for-dollar asset protection (but not total asset protection). Otherwise, an insured is entitled to Medicaid asset protection only in the state where he bought his policy.

The Experience in the Four Original States

Have long-term care partnership programs been successful in the states where they have been operating for a number of years? One measure of success is how many partnership policies have been sold. This varies widely from state to state, but there are a significant number in all four states, and they represent a substantial percentage of all LTCI policies in force in Connecticut and Indiana. A major factor in the variation among states appears to be the administrative and reporting requirements a state imposes on insurers seeking to participate in the program. If insurers find these requirements too burdensome, many may decide not to market partnership policies, and as a result fewer products are available, fewer agents are selling them, and fewer consumers buy them. Other factors include demographics, agent training, the existence of programs for state employees and retirees, and the non-partnership LTCI products sold in the state.

A second important measure of the success of state partnership programs is whether those who participate are diverted from reliance on Medicaid for long-term care funding. In fact, an extremely small number of those holding partnership policies have exhausted their LTCI benefits and received Medicaid benefits, a fraction of 1 percent of the total. While it is difficult to know how many of these people would have gone on Medicaid if they had not bought a partnership policy, this statistic is nonetheless a strong indication that the existing state programs are meeting their objectives in this regard.

A New Expansion of Partnership Programs

The generally positive experience of the original partnership programs and the continuing and growing need to hold down Medicaid expenditures have led to a movement to expand state partnership programs beyond the original four states. At the same time, there has been a desire to learn from the experience of the original states and promote some changes that it is hoped will enhance the success of any new programs. Specifically, the goals have been more simplified administrative procedures, greater uniformity among states in requirements for product design and reporting, less difference in the regulatory treatment of partnership and nonpartnership policies, and reciprocity among state programs. What are the reasons for these goals?

Simpler rules and requirements that are the same or very similar across state lines and for both partnership and non-partnership policies would make it easier for insurance companies to enter the partnership market. This would result in more partnership products available to consumers and a more extensive marketing effort, which should lead to many more people covered by partnership policies.

Without reciprocity among state programs, the purchasers of partnership policies must be concerned that if they move to another state, they will lose one of the main advantages of their policy, Medicaid asset protection. Broad reciprocity thus would make partnership policies much more attractive to consumers, increasing the number of people who buy them.

 The Deficit Reduction Act

The federal Deficit Reduction Act (DRA) of2005 (effective February 8, 2006) includes provisions intended to facilitate the nationwide expansion of state partnership programs and meet some of the other goals cited above.

These provisions can be summarized as follows:

The requirement that any new state partnership program must apply the Medicaid estate recovery rules to assets protected under the program is lifted. All states may now establish new programs that allow participants to preserve assets after death.
However, the DRA sets requirements for any new state program and for the partnership policies of these programs. This is intended to impose a degree of uniformity across states.
The DRA promotes but does not require reciprocity among the new state programs. Specifically, reciprocity applies unless a state explicitly opts out. However, the degree of uniformity of programs and policies from state to state should facilitate reciprocity.  
 New programs can protect assets on a dollar-for-dollar basis only. Total asset protection is not permitted.
The four existing partnership programs are exempt from these new rules and may continue to operate as before.

In short, under the DRA each state can establish its own program under its own rules, but a certain amount of uniformity in programs and policies from state to state is imposed, and reciprocity is encouraged. The DRA presents states and the insurance industry with a tremendous opportunity to increase the number of people with LTCI coverage throughout the nation.

 Establishing State Programs

Programs that meet the DRA requirements are called qualified state long-term care insurance partnership (QSLTCIP) programs. If a state wants to create a QSLTCIP program, it must file a State Plan Amendment (SPA) with the Centers for Medicare and Medicaid Services (CMS), a part of the Department of Health and Human Services. An SPA is the vehicle by which a state seeks federal approval of changes in its Medicaid program. In an SPA establishing a QSLTCIP program, the state sets forth the proposed rules and requirements for its program as well as the date on which the program will become effective. CMS reviews an SPA and either approves it, denies it, or requests modification and resubmission.

The response of state governments to the changes enacted by the DRA and the opportunity they present has generally been enthusiastic. Idaho was the first state to have its SPA approved, and it formally launched its QSLTCIP program effective November 1, 2006. As of mid-2007, twenty states have joined the original four in offering long-term care partnership programs.

States currently offering LTC Partnership Programs
Original partnership states
Rhode Island
New York
North Dakota