The Suitability of a Partnership LTCI Policy

The ethical considerations that apply to long-term care insurance in general also apply to partnership LTCI coverage. But in addition there are suitability issues specific to partnership policies. Consumers can be divided into three broad categories:

Those considering a partnership policy should be aware of a number of important limitations:

• Limited Medicaid coverage options — as learned in Chapter 2, 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. A person who goes on Medicaid when LTCI benefits end may have to move out of her home and into a nursing home — possibly one that is far from home or less desirable.
• No automatic rollover to Medicaid — there is no automatic transition to Medicaid coverage after LTCI benefits are exhausted. A person must apply for Medicaid like anyone else, and acceptance is not guaranteed. She must meet Medicaid criteria for general eligibility, functional eligibility (need for care), and asset and income eligibility limits. In the four original partnership states, it is not uncommon for an individual to exhaust insurance benefits but not qualify for Medicaid.
• Partnership protects assets, not income — partnership programs affect only assets, not income. A person who has exhausted 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.
• Only a portion of assets is protected — partnership coverage protects only an amount of assets equal to the LTCI benefits received, not all assets. If a person exhausts benefits and applies for Medicaid, he must still spend down any assets above this protected amount. (Indiana and New York offer total asset protection, but this is an exception and the DRA does not allow it for new programs.)
• Home equity protection is limited — if a home is deemed a countable asset by Medicaid and subject to spend-down or estate recovery, a partnership policy protects it only if the home equity is less than the amount of LTCI benefits received.
• Medicaid may become more restrictive — given 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.
• No guarantee assets will be preserved — 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.
• Reciprocity is not universal — 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 might not have reciprocity with the original state. Even where reciprocity exists, the new state’s Medicaid benefits and eligibility may differ from the original state’s.
• Partnership programs may change — the federal government or state governments could substantially modify or discontinue partnership programs in the future, possibly affecting the asset protection a PQ policy provides.

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 she is unable to afford the premium now or likely will be unable to in the future, the policy is not suitable — unless family members will contribute.
• Are the client’s assets too small? If assets are not substantial enough 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 at all, making the asset protection feature of limited value.
• 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 the asset protection afforded by a PQ policy may be unnecessary.
• Does the client want to buy limited coverage expecting to eventually apply for Medicaid to protect assets? He must understand the drawbacks of being a Medicaid recipient and the uncertainty of qualifying. It may be advisable to tailor the amount of coverage to the amount of assets to be protected.
• Is the client attracted by the asset protection 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 select a daily or monthly benefit sufficient to cover at least most of his likely long-term care needs so that assets are not depleted before 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? For those well established in a locality, reciprocity may not be a serious concern. Others must be made aware that Medicaid asset protection may not be available in other states.
• 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 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.