How Purchasing Long Term Care Insurance Can Help Medicaid Beneficiaries Protect their Homes & Assets

Last updated: December 11, 2019

 

What are Long Term Care Partnership Programs?

Long Term Care (LTC) Partnership Programs are a collaboration between private long-term care insurance companies and a state’s Medicaid program. The intention of partnership programs is to encourage the purchase of long term care insurance to help cover the costs of long term care, while also alleviating the burden on the states to pay for this type of care via Medicaid. Of particular relevance to seniors who may need long term care Medicaid in the future, participating in a partnership program protects some (or in some cases, all) of a program participant’s assets (resources) from Medicaid’s asset limit. Furthermore, the “protected” assets are also safe from Medicaid’s asset recovery program, sheltering assets as inheritance for family after the passing of a Medicaid recipient. (This will be covered in more detail below). Partnership for Long Term Care Programs can be thought of as a Medicaid asset protection technique for healthy seniors who do not have an immediate need for long term care.

  Medicaid applicants who participate in Partnership programs can retain assets above and beyond the limit set forth by Medicaid.

These programs, also called Qualified State Long Term Care Partnership Programs, originated in 1992 in four states (California, Connecticut, Indiana, New York). In 1993, the Omnibus Budget Reconciliation Act (OBRA) prevented the expansion of these programs to additional states. However, with the passing of the 2005 Deficit Reduction Act (DRA), all states were given the option of creating partnership programs. At the time of this writing, our research shows that all states except Alaska, Hawaii, and Mississippi, now have a long term care partnership program. To ensure there is a long term care partnership program in any specific state, contact that state’s Department of Insurance. Contact information can be found here. Please note that many partnership programs have state specific names, such as the Indiana Long Term Care Insurance Program (ILTCIP), the New York State Partnership for Long-Term Care (NYSPLTC) Program, and the Arizona Long Term Care Partnership Program.

Long term care, as defined by Partnership programs encompasses a variety of services to assist persons who are unable to perform day-to-day activities, such as bathing, dressing, and toiletry, independently. Examples of long term care might include in-home personal care assistance, home health aides, adult day care, assisted living, memory care, and nursing home care.

 

Benefits of Long Term Care Partnership Programs

Participating in a LTC Partnership Program offers asset protection (protection of savings from the asset limit and protection from estate recovery of the home) to Medicaid applicants. To be clear, this program protects assets, not a Medicaid applicant’s income.

Let’s back up; all states have an asset limit for long term care Medicaid, which generally speaking, is $2,000. However, there are certain assets that are exempt (noncountable) from this limit, which includes one’s primary home, household furnishings, personal items, and a vehicle. (To see state specific asset limits, click here). Applicants who have countable assets greater than $2,000 must “spend down” the extra assets in order to meet Medicaid’s asset limit, and hence, qualify for long term care Medicaid. It is important to note that Medicaid has a look back period of 5 years (2.5 years in California) in which all asset transfers are scrutinized to ensure none were given away or sold for less than fair market value in order to meet Medicaid’s asset limit. Persons who violate this rule are penalized with a period of Medicaid ineligibility.

Returning to the topic of Qualified State Long Term Care Partnership Programs, these programs protect all, or a portion, of an elderly individual’s assets from Medicaid’s asset limit should he / she require long term care Medicaid. Stated differently, assets above and beyond the $2,000 limit are protected and do not have to be “spent down” for qualification purposes. The exact amount that is protected is based on the amount a senior’s partnership policy has paid out for long term care. Essentially, an amount equal to that paid out by one’s long term care partnership policy is protected from Medicaid’s asset limit.

Furthermore, asset protection extends to Medicaid’s estate recovery program, in which a state attempts reimbursement of funds paid for long term care following the death of a Medicaid recipient. (All states have an estate recovery program). Generally, one’s home is the only remaining asset of any value, and it is through this asset that the state usually attempts to be reimbursed. To be clear, while one’s home is exempt from the asset limit, it is not exempt from estate recovery. However, through participation in a LTC Partnership Program, a Medicaid recipient can declare his / her home as a “protected” asset, protecting it from Medicaid’s estate recovery program. The “protected” home can then be passed on to family as inheritance, rather than the state forcing the sale of the home to be reimbursed the funds in which it paid for long term care.

  Example:

Fred has a Long Term Care Partnership Policy that paid out $100,000 in long term care services for him. Since his policy paid out $100,000, an equal amount ($100,000) is protected from Medicaid’s asset limit and estate recovery program. Remember, Medicaid’s asset limit is $2,000. This means that Fred is entitled to $2,000 in assets, plus the $100,000 that is protected, allowing him to retain $102,000 total in assets. His home is valued at $75,000, he has $25,000 in a money market account, and there is $2,000 in his savings account. Therefore, he declares the home and money market funds as “protected” assets, and after Fred passes away, they can be passed on to his family.

 

How LTC Partnership Programs Work?

In order to protect one’s assets from Medicaid’s asset limit and estate recovery, one must have purchased and received long term care benefits from a qualified long term care insurance policy, also called a “partnership” policy. For each dollar the insurance policy pays out for long term care, a dollar will be protected.

One might be wondering if it is possible to purchase a partnership policy in one state, apply for long term care Medicaid in another state, and the asset protection still be upheld. The answer is dependent on a few factors. Both states must have partnership programs, the policyholder must meet the requirements for the partnership program in the state in which he / she will apply for long term care Medicaid, he / she must meet the Medicaid eligibility criteria in that state, and the two states must have a reciprocal agreement, which allows a policyholder in one state to move to the other state and still receive asset protection.

As per the requirement that a senior must meet the partnership program eligibility in the state in which he / she plans to relocate, in some states, a policyholder is required to “exhaust” his / her insurance benefits. This means the entire sum for which he / she is insured must be paid out prior to applying for long term care Medicaid. In other states, a policyholder does not have to deplete his / her total benefits prior to applying for long term care Medicaid, and he / she will still receive asset protection in the amount that the policy paid out prior to application.

 

LTC Partnership Program Eligibility Criteria

How Far in Advance Do You Need to Buy the Policy?

Persons who wish to participate in a Partnership for Long Term Care Program should purchase a partnership policy while they are still fairly healthy and do not have an immediate need for long term care. If a senior is already residing in a nursing home residence, it is too late to participate in this program, as he / she won’t qualify for the policy. Similarly, if an individual is in good health but has been diagnosed with Alzheimer’s or related dementia, it is unlikely a company would offer them a policy. Most, if not all, companies require a health screening prior to the sale of a long term care insurance policy.

There are two components of eligibility for LTC Partnership Programs; the partnership requirements associated with a qualified long term care insurance policy and the eligibility criteria for long-term care Medicaid. While we include the general requirements below, please keep in mind that requirements are state specific, which means the exact rules are not uniform across states.

 

Partnership Program / Policy Criteria

• The state in which a senior resides must have a partnership program.
• The senior must purchase a partnership-qualified policy from a private insurance company. The insurance company and long term care policy must be approved by the state partnership program in which the purchaser resides. To be clear, if a senior purchases a nonpartnership long term care insurance policy, he / she will have insurance coverage, but there will be no Medicaid asset protection / Medicaid estate recovery protection should the need for long term care Medicaid arise.
• The senior must be in reasonably good health. Otherwise, insurance coverage will likely be denied.
• The partnership-qualified policy must include inflation protection. This means that the available amount of benefits are adjusted as the cost of long term care increases. Stated differently, the total amount the insurance company pays out might be higher than the benefit amount originally purchased. One exception exists; seniors over 75 are not required to have inflation protection.
• The partnership policy has to be a federally tax-qualified long term care plan. This means that part of the premium cost can be used as a tax deduction.
• The senior must be able to afford the monthly / annual premium (the cost of the policy).
• For asset disregard (asset limit and Medicaid estate recovery), a senior must receive long term care Medicaid in the state in which he / she bought the partnership policy OR receive long term care Medicaid in a state that has a LTC Partnership for Long Term Care Program and has a reciprocal agreement with the state in which the senior wants to receive Medicaid benefits.

 

Long Term Care Medicaid Eligibility Criteria

• The senior must have a functional need for long term care. This often means he / she must require a nursing home level of care.
• The senior must have limited monthly income, which as of 2019, is generally limited to $2,313.
• The senior must not have more than $2,000 in countable assets. But, remember, with a partnership policy, an additional amount of assets will be protected.

To see state specific Medicaid long-term care requirements, click here. Being over the income and / or asset limitations is not automatic cause for Medicaid disqualification. See Medicaid planning strategies here.

 

LTC Partnership Programs Costs

The cost of a long term care partnership policy can vary significantly, and depends on a variety of factors, such as the insurance company, the age of the person purchasing the policy (younger persons have a lower annual premium), marital status (premiums are generally lower for a couple versus an individual), sex (coverage for a female tends to be more costly), and the coverage / benefit amount (the higher the coverage, the higher the premium).

According to the American Association for Long-Term Care Insurance (AALTCI), in 2019, for a single male who is 55 years old, the average annual cost for long term care insurance with $164,000 in coverage is $2,050 ($171 / month). In comparison, for a woman of the same age and same amount of coverage, the average annual premium comes to $2,700 ($225 / month). For a married couple, also 55 years old and $164,000 in coverage for each spouse, the average annual cost is $3,050 ($254 / month).

 

Which States Have LTC Partnership Programs?

At the time of this writing, most states have a long term care partnership program. However, a few states do not, and to the best of our knowledge, these states are Alaska, Hawaii, and Mississippi. To confirm, or deny, that the state in which you or a loved one resides has such a program, contact the state’s Department of Insurance. Contact information can be found here.

 

How to Get Started

Contact your state Department of Insurance to confirm that your state has a Long Term Care Partnership Program. They can also provide additional information about the program and provide direction as how to find insurance companies in your state that sell partnership policies. Alternatively, the Medicaid agency in your state may be helpful.

 

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