Summary of Partnership Programs
Long-term care partnership programs are a way for state governments to give individuals an incentive to provide for their own long-term care needs by purchasing LTCI policies, thus reducing the number of people who end up relying on the Medicaid program.
The advantage to the individual of a partnership LTCI policy is that if he needs long-term care for such a long time that he uses up the benefits of his policy and is forced to apply to Medicaid, some of his assets are protected from Medicaid spend-down rules and estate recovery.
Four states created the first partnership programs in the late 1980s, but OBRA 93 required any new state programs to apply estate recovery to protected assets, effectively halting expansion. However, the four original state programs have continued to operate.
The Deficit Reduction Act of 2005 lifted the estate recovery requirement, and as a result many states are establishing partnership programs. The DRA imposes a degree of uniformity on state programs and partnership policies and promotes reciprocity among states.
To qualify for a state long-term care partnership program, an LTCI policy must meet requirements set forth in the Deficit Reduction Act. States can also impose additional requirements on partnership-qualified policies, but they must apply the same requirements to non- PQ policies as well.
A PQ policy must be federally tax-qualified, issued after the state program became effective, and sold to a resident of the state. It must contain certain consumer protection provisions in the areas of documentation and disclosure; benefits; exclusions and limitations; renewal, replacement, and termination of coverage; claims; and sales and marketing. However, these provisions are drawn from the NAIC LTCI Model Act and Model Regulation, so they are in fact included in most LTCI policies. On the other hand, PQ policies can differ from other policies in the area of inflation protection, where the DRA imposes age-based requirements.
The Deficit Reduction Act establishes the framework for new state partnership programs, but its provisions leave room for interpretation and variation by the states. States can also set their own requirements for PQ policies, as long as they apply these requirements to non-PQ policies as well.
PQ policies must provide "annual compound inflation protection" to insureds who are 60 years old or younger at purchase, but states may differ in how they interpret and implement this language. A state mayor may not allow less than a 5 percent annual rate or a guaranteed purchase option, and it mayor may not permit insureds to downgrade their inflation protection as they age.
An insured can exchange an existing non-PQ LTCI policy for a PQ policy, but only benefits received under the PQ policy are counted toward Medicaid asset protection.
Changes made to a policy after it is issued do not affect its PQ status as long as all PQ requirements continue to be met. States will need to define what coverage changes would violate their PQ requirements, and insurers will then take steps to prevent consumers from inadvertently losing the PQ status of their policies.
If an insured with a PQ policy moves to another state, he will be entitled to Medicaid asset protection in the new state only if it has a partnership program and also has reciprocity with the old state. Reciprocity is promoted but not required by the DRA.
An insured does not have to wait until the benefits of his partnership LTCI policy are exhausted to apply for Medicaid, but the amount of assets that will be protected is based on the amount of insurance benefits he has received when he applies, even if more benefits are paid under the policy. Waiting until all insurance benefits have been paid is often but not always advantageous.
As a result of the DRA requirements, there will generally be little difference between PQ and non-PQ policies in a state. The main difference between the PQ and non-PQ versions of a product would be that a purchaser who wants his policy to have PQ status would need to purchase an inflation protection option that meets PQ requirements for his age.
For an insurance product that meets all PQ requirements to be a PQ policy, the state insurance department must review and certify it, and the insurer must prominently disclose its PQ status to consumers.
Insurance companies will have to report information on their PQ policies so that state Medicaid programs can grant asset protection when applicable, and so that the states and the federal government can evaluate partnership programs and set policy for them.
For insurance agents, there will be new training requirements for selling partnership LTCI policies.