What Is a Partnership Program?
If a person does not buy an LTCI policy and needs long-term care, she must use her income, savings, and assets to pay for it. If she needs care for a long time she could exhaust these resources, leaving Medicaid as her only recourse. The more people who rely on Medicaid, the greater the financial burden on this already strained program. State governments therefore have much to gain from encouraging individuals to provide for their long-term care needs through LTCI coverage.
A state long-term care partnership program is a program under which a state government modifies its Medicaid eligibility rules to give a financial incentive for the purchase of LTCI 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 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, the policy’s benefits pay for his care and the state Medicaid program does not have to cover the cost. However, in the event he needs care for so long that he uses up his LTCI benefits and is forced to apply to Medicaid, he is not obligated to spend all the assets he otherwise would. Generally, under the dollar-for-dollar approach, he may keep assets equal in amount to the benefits he received under his partnership policy. Moreover, these assets are exempt from Medicaid estate recovery and preserved for his heirs.
Susan (no partnership policy): Develops a physical impairment and needs long-term care. Before qualifying for Medicaid, she must spend all her assets except $2,000 and a few noncountable items. Her state provides only limited home care benefits, so she must enter a nursing facility. The nursing home of her choice has no Medicaid beds available, so she goes to a less desirable facility far from her family. After she dies, any remaining assets are taken by Medicaid under estate recovery.
John (partnership policy — benefits sufficient): Purchases a partnership LTCI policy, becomes physically impaired, and uses his LTCI benefits to pay for most of his care. He does not become impoverished, avoids the limitations of Medicaid coverage, can be cared for at home, and has a wide choice of facilities if he eventually needs a nursing home. The state also benefits — it does not have to pay for John’s care.
Kevin (partnership policy — benefits exhausted): Also purchases a partnership policy and receives benefits, but needs care for several years and eventually uses up his policy’s $200,000 lifetime maximum. He applies for Medicaid. Because he bought the partnership policy, he may retain $200,000 in assets — the amount he received in benefits — in addition to any noncountable assets and the $2,000 his state normally allows. This $200,000 is also protected from Medicaid estate recovery and preserved for his heirs.
Partnership policies may be of particular value to those who cannot afford a large amount of LTCI coverage but have significant assets they want to protect. An individual can even tailor the lifetime maximum to the amount of assets he wants to protect — if he wants to protect $150,000, he buys a partnership policy with a $150,000 lifetime maximum.
Emily: Has a limited income but assets she would like to pass on to her son Ted. She cannot afford an LTCI policy with a large lifetime maximum, but for a fairly low premium she can buy a partnership policy with a $100,000 maximum. If she eventually needs Medicaid, $100,000 of her assets will be protected and preserved for Ted.
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 and develop partnership programs. The participating states were also granted approval by the U.S. Department of Health and Human Services (HHS) to modify their Medicaid eligibility rules.
These four demonstration projects became permanent programs. But the federal Omnibus Budget Reconciliation Act of 1993 (OBRA 93) effectively halted expansion by requiring any new programs to apply estate recovery to protected assets — meaning an individual with a partnership policy could retain assets while living, but those assets would have to be taken by Medicaid after death and could not be preserved for heirs. The four existing programs were exempted from this rule and continued to offer protection of assets after death. This rule made participation in a partnership program much less attractive, and no new state programs were established for many years.
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)
- Provide comprehensive benefits (coverage of both facility care and home care)
The four states also require a daily benefit of at least a certain minimum amount (adjusted annually), and each state has various other requirements.
All four state programs offer the dollar-for-dollar approach to asset protection. Indiana and New York also offer as an alternative the total asset approach, which allows an individual with a qualifying partnership policy to keep all his assets — not just an amount equivalent to the LTCI benefits received. For total asset protection, the 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, apply for Medicaid there, and receive dollar-for-dollar asset protection. Otherwise, an insured is entitled to Medicaid asset protection only in the state where he bought his policy.
Partnership programs have demonstrated meaningful success in the original four states. The number of partnership policies sold varies widely by state but represents a substantial percentage of all LTCI policies in force in Connecticut and Indiana. A major factor in the variation among states is the administrative and reporting burden placed on insurers — if requirements are too burdensome, fewer insurers market partnership policies, fewer agents sell them, and fewer consumers buy them.
A second important measure of success is whether participants are diverted from reliance on Medicaid. An extremely small number of those holding partnership policies — a fraction of 1 percent of the total — have exhausted their LTCI benefits and received Medicaid benefits. This is a strong indication that the existing state programs are meeting their objectives.
A New Expansion of Partnership Programs
The positive experience of the original programs and the continuing need to hold down Medicaid expenditures led to a movement to expand state partnership programs nationwide. Goals for any new expansion included simpler administrative procedures, greater uniformity among states in product design and reporting requirements, less difference between the regulatory treatment of partnership and nonpartnership policies, and reciprocity among state programs.
- Simpler, more uniform rules would make it easier for insurers to enter the partnership market, resulting in more products, more extensive marketing, and more people covered.
- Without reciprocity, purchasers who move to another state risk losing Medicaid asset protection — broad reciprocity makes partnership policies much more attractive and encourages more purchases.
The federal Deficit Reduction Act (DRA) of 2005 (effective February 8, 2006) includes provisions intended to facilitate the nationwide expansion of state partnership programs:
- The OBRA 93 restriction requiring estate recovery on protected assets is lifted. All states may now establish new programs that allow participants to preserve assets after death.
- The DRA sets requirements for any new state program and for partnership policies, imposing a degree of uniformity across states.
- The DRA promotes but does not require reciprocity — reciprocity applies unless a state explicitly opts out.
- New programs can protect assets on a dollar-for-dollar basis only. Total asset protection is not permitted for new programs.
- The four existing partnership programs are exempt from these new rules and may continue to operate as before.
Programs meeting the DRA requirements are called qualified state long-term care insurance partnership (QSLTCIP) programs. To create a QSLTCIP program, a state must file a State Plan Amendment (SPA) with the Centers for Medicare and Medicaid Services (CMS). An SPA sets forth the proposed rules and requirements for the program and its proposed effective date; CMS reviews it and either approves, denies, or requests modification.