Long Term Care Partnership Plans Provide Additional Asset Protection
Many people are unaware of a joint federal/state program which provides additional asset protection. As people start planning for their future retirement addressing the high costs of long-term health care becomes an important part of the planning equation. Therefore, this partnership program was created as a way consumers can protect assets with certain qualified long-term care insurance plans.
The Long-Term Care Partnership Program is a public-private partnership between states and private insurance companies, designed to reduce Medicaid expenditures by delaying or eliminating the need for some people to rely on Medicaid to pay for LTC services
In the late 1980s, four states adopted a partnership program on a test basis with funding received from the Robert Wood Johnson Foundation. California, Connecticut, Indiana and New York were the original four states selected to participate.
In 2005 President Bush signed the Deficit Reduction Act (DRA). This authorized the remaining states to allow insurance companies to offer Partnership policies. These policies extend the benefits purchased by offering additional dollar-for-dollar asset protection or what is referred to as asset disregard. A policy hold received a dollar for asset disregard for every dollar an insurance company pays for your future long-term care. This allows a person who exhausts their LTC policy benefits to access Medicaid without the required “spend-down” of assets that are normally required.
For example, Fred in Illinois purchases a partnership LTC policy at age 52. (As of this writing, Illinois is in the final stages of authorizing their partnership program.) The policy he purchased features an initial $150,000 pool of money, $4000 a month and grows 3% compounded every year (the benefits – not the premium). When Fred is 82 he requires care. His benefit is now worth $364,089.40 with a monthly benefit of $9709.05. While in most cases that would be plenty of benefit Fred has Alzheimer’s and exhausts all his benefits. Since the benefits still increase even as he spends it down let’s say by the time he exhausts his benefits the insurance company paid out $400,000.
The problem is Fred is still alive and still requires care. Illinois requires a person to have no more than $2000 to qualify for Medicaid. However, since Fred had a partnership policy they will disregard the $400,000 the insurance company paid in the calculation. If he has less than that amount he would qualify for Medicaid and still be able to keep the $400k. Otherwise, the spend-down will disregard the $400k and will be less painful.
"The partnership is the best-kept secret in long-term care insurance. If I were selling it, it would be the only thing that I would advocate," said Jesse Slome, executive director of the American Association for Long Term Care Insurance (AALTCI) a national consumer education and advocacy group.
Since many people move after they retire most states will reciprocate so not only is your policy still good in any state you move to the additional partnership asset protection will also be honored. This link shows a map so you can see the states which will honor your state’s partnership program:
Even a small partnership LTC policy will not only provide money for quality caregivers but will give you some asset protection. This way you know you won’t lose everything if you exhaust all your policy benefits. Since the risk of needing some type of long-term care service is 7 in 10 once you hit the age of 65 (US Department of Health and Human Services) having some way to address this risk will benefit your family.
Policies are affordable especially if you obtain one before you retire (40-65). The cost of policies are higher at older ages but your health may limit your ability to obtain new coverage.