The Suitability of a Partnership LTCI Policy
The ethical considerations that apply to long-term care insurance in general of course also apply to partnership LTCI coverage, but in addition there are some suitability issues that are specific to partnership policies, and we will discuss these here.
In regard to the suitability of a partnership LTCI policy, we can divide consumers into three categories:
• Some people strongly wish to avoid relying on Medicaid and have the financial means to buy coverage that makes it extremely unlikely they will ever have to do so. They can purchase a policy with a very high or even unlimited lifetime maximum, a daily or monthly benefit sufficient to cover the cost of any care they are likely to need, and automatic compound inflation protection. For these people partnership coverage is unnecessary.
• Other people have low incomes but assets they wish to preserve. It may be advantageous for them to purchase a partnership policy with a modest lifetime maximum and a low premium. But they must realize that even though they are paying for insurance, their benefits will not last long, and it is very possible that they will have to rely on Medicaid at some point. Furthermore, if the individual will find it difficult to pay the premium, now or in the future, coverage is not suitable, however much she may want to protect assets. And if her assets are not large enough for her to benefit significantly from Medicaid asset protection, there is no reason to buy a partnership policy.
• Most consumers fall between these two extremes. They can afford enough LTCI coverage to make a need for Medicaid very unlikely, but still possible, and they have assets they want to preserve. For them, a PQ policy offers some assurance that in the event they do have to apply for Medicaid, some of their assets will be protected.
However, those considering a partnership policy should be aware of a number of important limitations and drawbacks:
• As we learned in Chapter Two, Medicaid benefits for home and community-based long-term care are unavailable or restricted in some states, assisted living is not generally covered, and the choice of facilities may be limited. Consequently, a person who goes on Medicaid when her LTCI benefits end may have to move out of her home and into a nursing home. Or she may have to move from one facility to another, and the new facility could be far from home or less desirable for some other reason.
• There is no automatic roll-over to Medicaid coverage after one's partnership LTCI benefits are exhausted. A person who uses up her insurance benefits must apply for Medicaid like anyone else, and acceptance is not guaranteed. Such a person must meet Medicaid criteria for general eligibility and functional eligibility (need for care) as well as asset and income eligibility limits. In the four original partnership states, it is not uncommon for an individual to exhaust her insurance benefits but not qualify for Medicaid.
• Partnership programs affect only assets, not income. A person who has exhausted his insurance benefits might not qualify for Medicaid because his income exceeds eligibility limits. And if he does qualify, he will generally have to spend almost all his Income on care.
• Buying a partnership policy does not protect all of a person's assets, only an amount equal to the LTCI benefits received. If a person exhausts his insurance benefits and applies for Medicaid, he will still have to spend down any assets above this amount. (The Indiana and New York programs do offer total asset protection, but these are exceptions, and the DRA does not allow this for new programs in other states.)
• If a person's home is deemed a countable asset by Medicaid and subject to spend-down requirements, a partnership policy protects it only if the amount of home equity is less that the amount of protected assets (that is, the amount of insurance benefits the person has received). Likewise, if a home is subject to estate recovery, partnership coverage protects it only if the equity is less than the LTCI benefits received. (See Chapter Two for Medicaid treatment of homes.)
• Given the financial strains on the system, Medicaid asset and income eligibility limits could be considerably higher in the future, making it more difficult to qualify, and benefits could become less generous.
• There is no guarantee that any assets will be preserved, even if one qualifies for Medicaid. If the daily or monthly benefit of a partnership policy is insufficient to cover the cost of care, a person could spend his assets before he uses up his insurance benefits and applies for Medicaid.
• If an insured moves to another state, Medicaid asset protection may not be available there. The new state might not have a partnership program, or it might not have reciprocity with the old state. A person in this situation would have to either forgo asset protection, or move back to the old state when he needs to apply for Medicaid, or move to another state that has a partnership program with reciprocity with his original state. And consumers should also be aware that even in cases where the new state does extend reciprocity, the benefits and eligibility of its Medicaid program might be different from the old state's.
• Partnership programs are subject to change. The federal government or state governments could substantially modify or discontinue partnership programs in the future, possibly affecting the asset protection provided by a PQ policy.
These are important concerns, and a person thinking of buying a partnership policy should give them serious consideration. But it should also be pointed out that most LTCI policies sold today meet the DRA requirements for PQ status, except in some cases for inflation protection. So if a person is planning in any case to buy an LTCI policy with the inflation protection required for his age by the DRA, there is no reason not to buy a PQ policy rather than a non-PQ policy, assuming the price is the same or very close. In such cases, the fact that a policy happens to have PQ status and entitles the insured to Medicaid asset protection in the event he ever needs it is simply an extra.
In summary, an agent trying to determine if a PQ policy is suitable for a client should ask the following questions:
• Is the client's income too low? If he is unable to afford the premium, or will likely be unable to in the future, the policy is not suitable (unless family members will contribute).
• Are the client's assets too small? If his assets are not substantial enough for him to benefit significantly from Medicaid asset protection, the policy is not suitable.
• Is the client's income too high? He may be unlikely to qualify for Medicaid.
• Does the client want a very large amount of LTCI coverage? If he wants and can afford a policy with a very large or unlimited lifetime maximum, it is extremely unlikely he will ever apply for Medicaid and need the asset protection afforded by a PQ policy.
• Does the client want to buy limited coverage, in the expectation of eventually applying for Medicaid, in order to protect assets? He must understand the drawbacks of being a Medicaid recipient and the uncertainty of qualifying for Medicaid. Also, it may be advisable to tailor the amount of coverage to the amount of benefits to be protected.
• Is the client attracted by the asset protection a PQ policy affords in the unlikely event he must apply for Medicaid? He must be aware that not all assets are protected, including possibly his home. He should also select a daily or monthly benefit amount sufficient to cover at least most of his likely long-term care needs so that his assets are not depleted before his insurance benefits run out. He should also be warned about the uncertainty of Medicaid eligibility.
• How likely is the client to move to another state? Some people are very well established in a locality, and for them reciprocity may not be a serious concern. Others must be made aware that the Medicaid asset protection that a PQ policy provides may not be available in other stares.
• What is the price difference, if any, between a PQ policy and a comparable non-PQ policy? There may be no difference or only a very small one, in which case it may make sense to have the asset protection of a PQ policy just in case.
In short, partnership LTCI policies have their limitations, and an agent must make sure clients understand these and must not over-promise. But in our discussion, we should not lose sight of the fact that partnership policies are an innovative product that offer a valuable advantage to many people -- the protection of some of their assets should they ever need to apply for Medicaid.