An Introduction to Long Term Care Partnership Programs

An Introduction toLong Term Care Partnership

ProgramsProduced by

The National Association of Health UnderwritersLong Term Care Advisory Group

• What is a Long-Term Care Partnership Program?

• Why is a Partnership Program important?

• Endorsed by state• Help consumers see LTC Insurance as

ASSET PROTECTION• Provide relief for the Medicaid

program• Should assist in making long-term care

sales

• How do partnership plans accomplish this?– It all comes down to who will be

responsible to pay for long-term care expenses incurred in the future.

WHO PAYS NOW?• State governors’ concerns today focus on

rising Medicaid costs• Medicaid: 47 percent• Out-of-pocket: 21 percent• Medicare: 17 percent• Private LTC insurance: 10 percent• Other: 5 percent

Let’s recap:

Medicaid:• Is 1965 public program for the poor• Has now become the default payer of LTC

costs• Approves people either through the spend-

down process or by artificial qualification

MEDICAID• Generally pays for nursing home care• Nursing home care is the primary driver

today of increased Medicaid expenses• Factor in the Boomers, and …

… SOMETHING HAS TO GIVE

MEDICAID AND LTC• Medicaid’s problems are not new• Evidence in early 1980s that growing LTC

expenses would over-burden this public program for the poor

• Study was appointed in the 1980s to investigate possible solutions to the coming crisis

RWJ FOUNDATION• The Robert Wood Johnson Foundation

commissioned a study in the 1980s • Report issued in 1987

RWJ FOUNDATION

• The RWJ Foundation concluded that the best path for Medicaid to avoid a continued run-up in LTC expenses was to encourage consumers in the matter of personal responsibility by purchasing private LTC insurance to take the pressure off the Medicaid program.

LTC PARTNERSHIP PROGRAMS

• The result of this “encouragement” were insurance plans called LTC Partnership Policies

• States would give specific approval to LTC insurance contracts meeting certain standards

THE PARTNERSHIP PREMISE

• To reduce Medicaid expenditures by delaying or eliminating the need for people to rely on Medicaid

• Encourage purchase of private LTC insurance by giving an incentive for the consumer to buy

CONSUMER INCENTIVE

• By purchasing a LTC policy sold through the Partnership, asset protection from Medicaid would equal the amount of LTC insurance coverage

• This amount of assets would not have to be spent down to qualify for Medicaid

EXAMPLE• Consumer buys private LTCI with a total benefit

value of $250,000• Consumer needs care• Consumer uses LTCI first• If they use up the entire $250,000, their

application to Medicaid will allow them to keep that amount in addition to their primary protected assets like the home and car

• Based on the RWJ Study, four states decided to formally develop partnership programs and encourage consumers to buy LTC insurance

• Two distinct models emerged

PARTNERSHIP MODELS• Dollar-for-dollar: dollar value of the

protected assets equals the dollar value of benefits paid by LTC insurance contract

• Total Assets model: Required purchase of set minimum LTC coverage (6 years total) in exchange for complete protection of all assets

THE FOUR STATES• Connecticut: dollar-for-dollar model• California: dollar-for-dollar model• New York: total asset protection• Indiana: hybrid of the two

WHY NO MORE STATES?• Concern that a public program was

endorsing private insurance• Believed it would increase Medicaid costs

rather than reduce them by drawing attention to the program’s coverage

• Would mostly benefit wealthier individuals who could afford the private insurance

OBRA 1993• The Waxman Amendment• Prevented states from acquiring the

Medicaid waiver necessary to activate a partnership plan

• Iowa was stopped in mid-development

WHAT HAS BEEN THE RESULT FOR THESE FOUR STATES?

• Average age of partnership policyholders is between 58 and 63

• Majority of policyholders held assets greater than $350,000 (excluding home)

• Majority of policyholders had average monthly incomes of $5,000 or more

WHAT HAS BEEN THE RESULT FOR FOUR STATES?

• Over 180,000 policies purchased• Over 2,000 claims• Less than 5 percent ultimately applied for

Medicaid

CONNECTICUT• Latest year surveyed: 2003-04• 34 percent of purchasers of partnership

plans had assets between $100,000 and $350,000

• Average total benefit: $247,394• 97 percent were first-time purchasers

NEW YORK

• Now offering 4 different partnership models• 2 Total Asset Protection• 2 Dollar-for-Dollar• Still have minimum specified benefits, but

now drawing broader appeal

CALIFORNIA

• Average age at purchase: 57• 56 percent were female• 97 percent were first-time purchasers• 38 percent bought policies with a minimum

5-year benefit period

INDIANA

• Hybrid model: – Total asset protection if purchase made for

benefit amount of $188,000 or greater– Dollar for dollar protection for policies less

than $188,000

DEFICIT REDUCTION ACT OF 2005

• 1993 ban on LTC Partnership Programs lifted

and• Changes made to Medicaid eligibility

DEFICIT REDUCTION ACT OF 2005

• LTC goals were:

– Make it more difficult to qualify for Medicaid program artificially, and

– Encourage people to look to another source for LTC expense funding

DRA ’05: NEW MEDICAID RULES

• All transfers must occur 5 years prior to Medicaid application date

• Penalty period now imposed from the date of Medicaid eligibility – not the date of the actual transfer

ASSET TRANSFERS• Medicaid application date: August 1, 2006• Look-back window: retro to August 1, 2001• Transfer of $180,000 made February 1, 2002• Penalty! $180,000 divided by $3,300 = 54 months• Penalty used to be measured from date of transfer

– 2/1/02 + 54 months = eligibility on 8/1/06• NOW – Penalty applied as of 8/1/06 – eligibility

will be on 2/1/2011

NEW MEDICAID RULES• Medicaid application can now be denied for

person with home equity greater than $500,000 ($750,000 in some states)

• Annuities are now assets. Policyowner’s state of residence now required to be listed as a remainder beneficiary.

NEW PARTNERSHIP ACTIVITY• Now – there will be more than FOUR states• Federal Medicaid waivers will be granted• Each state that wants to offer LTC partnership

policies must file a state plan amendment with the Department of HHS

• Unless related to this process, no additional state legislation is necessary

STATE PLAN AMENDMENT• Policies cover state residents• Policies are tax-qualified• Policies adhere to NAIC provisions• Policies contain specified inflation options• LTC agents have appropriate training• Insurers subject to reporting requirements

WHO’S READY TO GO?

• Colorado Massachusetts• Florida Michigan Oklahoma • Georgia Minnesota Pennsylvania• Idaho Missouri Rhode Island• Illinois Montana South Dakota• Iowa Nebraska Virginia• Maryland New Jersey Washington

GRANDFATHERED

• Connecticut• California• New York• Indiana

CMS TEMPLATEClarification of:• Inflation protection (ages 61+)• Exchanges vs. grandfathering• Reciprocity• Agent training for certification• Uniformity