As the number of elderly Americans increases, long-term care (LTC) needs and costs are likely to grow. Many believe that private long-term care insurance can and should play a more significant role in the financing of home care and nursing home services. Wider use of such insurance could shift the burden from individuals, who are often ill-prepared to pay for such care out-of-pocket, as well as from state Medicaid programs, which often serve as a default financier of long-term-care services.
Long-Term Care: Costs and Impact
With the baby boom generation aging and the cost of services going up, paying for long-term care is an issue of pressing importance for policy-makers and individuals alike. While some individuals can count on friends and family to assist with the activities of daily living, many others must determine how to pay for extended home-health services or a potential stay in a nursing facility.
Expenditures on nursing home care make up the largest part of long-term-care costs in the United States. Almost $122 billion was spent on services provided by free-standing nursing homes in 2005, with an additional $47.5 billion spent on home-health care.
Medicaid accounted for the largest share, or 43.9 percent, of the total spent on nursing facilities. Consumers covered an additional 26.5 percent of these nursing home costs out-of-pocket and private insurance covered another 7.5 percent.
For consumers, the likelihood of needing nursing home services is significant. A 65-year-old man has a 27 percent chance of entering a nursing home at some point in his life; a 65-year-old woman faces a 44 percent probability of doing so. With the cost of a private room in a nursing home averaging more than $70,000 per year, the stakes are high, for both state governments, which, on average, spend 18 percent of their general fund budgets on Medicaid, and for individuals, who may be faced with catastrophic costs to cover necessary long-term-care services.
Medicaid is the country’s safety net health care program for people with low incomes as well as people who spend down their assets due to high health and long-term care expenses. Medicaid is also the primary source for long-term care payments. In 2003 Medicaid paid 46 percent of the $110.8 billion spent on nursing home care and 25 percent of the $40 billion spent on home health care. This link between Medicaid and long-term care was the key motivator for the development of the Long-Term Care Insurance Partnership model in the late 1980s.
The goal of the Long-Term Care Partnership model is to use Medicaid’s safety net feature as an incentive for middle income people to buy private long-term care insurance and, by doing so, encourage them to prepare for the risk of needing long-term care. This, in turn, will help delay or avoid the need for Medicaid to pay for their long-term care. In the Partnership, states offer the guarantee that if benefits under a Partnership policy do not sufficiently cover the cost of care, the consumer will qualify for Medicaid under special eligibility rules that allow a pre-specified amount of assets to be disregarded. (The consumer must also meet other Medicaid eligibility rules.) This is generally referred to as “asset protection” in the context of the Partnership program.
The asset protection feature of the Partnership program is an incentive to potential buyers because it allows consumers to retain a pre-specified amount of assets and still be eligible for Medicaid benefits if and when additional long-term care coverage (beyond what the policies provide) is needed. Without the asset protection provision of the Partnership, a person of limited means may not opt to purchase long-term care coverage at all.
The “dollar for dollar” asset protection model specified in the Deficit Reduction Act (DRA) legislation is based on the program experiences of the original Partnership states: California, Connecticut, Indiana, and New York. Under those state programs, a policy holder is allowed to keep an amount of assets equal to the amount the insurance pays out for their long term care. The assets protected are over and above any other asset that would normally be exempt or non-countable in the Medicaid eligibility determination process.
The DRA provisions relating to Partnership programs and asset protection are part of a larger package of Medicaid eligibility rule changes that include new asset transfer and home equity provisions. There are also a number of long-standing Medicaid eligibility rules that states still need to consider when determining Medicaid eligibility for Partnership policyholders.
Through Long Term Care Partnership policies, consumers are protected from having to become impoverished in order to qualify for Medicaid. They get access to expedited care assessment and management services, and states avoid the full burden of long-term care costs. Cost-effectiveness – for consumers and public purchasers – is the key rationale behind Partnership Programs. Cost effectiveness, however, depends on the confluence of a variety of factors, including which consumers to target, what policy features will help achieve cost-effectiveness, and the influence of DRA legislation.
How It Works
- You must be a resident of the state at the time the policy is issued.
- Partnership policies are standard LTC insurance policies. Inflation protection is generally required, it’s level based on the applicant’s age at time of issue.
- Under age 60 – Annual Compound Inflation Required
- Ages 61-75 – Can purchase either Simple or Compound Inflation
- Over age 76 – Inflation coverage is not required
Benefits of a Partnership Policy
- Allows private LTC insurance to work in conjunction with asset protection under the Medicaid program*
- In general, provides dollar-for-dollar Medicaid asset protection for every dollar of benefit paid out of a Partnership Qualified LTC insurance policy *
- Protected assets are also exempt from estate recovery
Please note that your LTC Insurance policy may no longer be Partnership-qualified in the future under the following situations:
- You revise your benefits in a manner that no longer meets the requirements for a Partnership-qualified policy (e.g., you drop your inflation coverage).
- You move to a state that does not have the same Partnership program or does not recognize your Partnership-qualified policy.
- State and/or federal laws change and the Partnership program is modified or discontinued at a future date.
In conclusion, numerous states have enacted a change in the law and proposed or enacted authorizing legislation. As momentum behind the program grows, those who purchase Partnership policies will need to carefully examine the ultimate outcomes of this unique and innovative policy option.
Allen Kampf, RFC, CLTC
Wealth Advocacy Partners
Sparks, Maryland 21152
 Centers for Medicare and Medicaid Services. National Health Expenditures Aggregate Amounts and Average Annual Percent Change, by Type of Expenditure: Selected Calendar Years: 1960-2005.
 Centers for Medicare and Medicaid Services. Nursing Home Care Expenditures Aggregate, Per Capita Amounts, and Percent Distribution, by Source of Funds: Selected Calendar Years 1970-2005.
 Brown J and Finkelstein A. The Interaction of Public and Private Insurance: Medicaid and the Long Term Care Insurance Market. National Bureau of Economic Research, Working Paper 10989, December 2004.
 Genworth Financial. Genworth Financial 2006 Cost of Care Survey: Nursing Homes, Assisted Living Facilities and Home Care Providers, March 2006.
 Smith V et al. Low Medicaid Spending Growth Amid Rebounding State Revenues: Results from a 50-State Budget Survey. State Fiscal Years 2006-2007. Kaiser Commission on Medicaid and the Uninsured, October 2006.
 CMS, National Health Accounts, 2005.
 For background on the Partnership model, see Long Term Care Partnership Expansion: A New Opportunity for States. Robert Wood Johnson Foundation Issue Brief, May 2007
 J. Stone. “Medicaid Coverage for Long-Term Care: Eligibility, Asset Transfers and Estate Recovery, as Modified by the Deficit Reduction Act of 2005,” CRS Report
*LTC-3801 9/06 Rev. 7/09 – John Hancock, Protecting More of Your Assets