Long-Term Care Partnership Program

A Long-Term Care Partnership Program is an arrangement between a state's Medicaid program and the private long-term care insurance market under which a person who buys a qualifying policy may keep assets that Medicaid would otherwise require them to spend, in an amount equal to the benefits the policy has paid out. The federal authority is 42 U.S.C. 1396p(b)(1)(C)(iii), which calls it a "qualified State long-term care insurance partnership" and defines it as "an approved State plan amendment under this subchapter that provides for the disregard of any assets or resources in an amount equal to the insurance benefit payments that are made to or on behalf of an individual who is a beneficiary under a long-term care insurance policy" meeting seven listed requirements. Two features of that definition are easy to skim past and decide everything. The disregard is measured against benefit payments made, so it grows only as the policy pays and is nothing at all if it never does. And the program is a state plan amendment, so whether one exists, and on what terms, is a matter of state action rather than of the insurance contract.

The problem the program addresses is a specific one, and CMS stated it plainly when the expansion took effect. Before the Deficit Reduction Act of 2005, states could already disregard assets equal to long-term care insurance benefits when deciding Medicaid eligibility, but only a handful could also exempt those assets from estate recovery. CMS's backgrounder of 25 July 2006 described the consequence: the arrangement "discouraged use of LTC insurance, because although it would allow individuals to qualify for Medicaid while retaining additional resources, those resources could not be protected for heirs, which is a critical concern for the elderly." Section 6021 of that Act, headed "Expansion of State Long-Term Care Partnership Program", opened the arrangement to every state that adopts a qualifying plan amendment.

The seven conditions in 1396p(b)(1)(C)(iii) are the whole of what makes a policy a partnership policy. The insured must have been a resident of the state when coverage first became effective. The policy must be a qualified long-term care insurance contract as defined in section 7702B(b) of the Internal Revenue Code, and must have been issued no earlier than the effective date of the state plan amendment. It must meet the model regulation and model Act provisions listed in paragraph (5). It must carry inflation protection according to the buyer's age, discussed below. The state Medicaid agency must provide information and technical assistance to the state insurance department on producer training. The issuer must report to the Secretary when benefits are paid, in what amount, and when the policy terminates. And the state must not impose requirements on partnership policies that it does not impose on long-term care policies generally. Two clarifications sit in the flush text after the list: on an exchange of one policy for another, the residency condition is applied "based on the coverage of the first such policy that was exchanged", and a "long-term care insurance policy" for these purposes "includes a certificate issued under a group insurance contract".

The inflation-protection condition is the one a buyer can get wrong, and it runs the opposite way to intuition. Subclause (IV) requires that a policy sold to someone who "has not attained age 61 as of the date of purchase" provide "compound annual inflation protection"; someone who "has attained age 61 but has not attained age 76" needs "some level of inflation protection"; and someone who "has attained age 76" may, but need not, have any. The youngest buyers face the strictest requirement, because they are the ones whose benefit has the longest time to be eroded. A younger buyer who declines compounding has not bought a partnership policy at all, whatever the brochure says.

The model-provision condition freezes a reference date, which matters when reading a current model act. Paragraph (5)(B)(i) provides that "model regulation" and "model Act" mean the NAIC long-term care insurance model regulation and model Act "as adopted as of October 2000". Paragraph (5)(C) then obliges the Secretary, within 12 months of any NAIC revision to a listed provision, to review the change and incorporate it if it would improve partnerships. So the standard is a snapshot with a maintenance duty attached rather than a live pointer at whatever NAIC last published. Among the model Act provisions on the list is section 6F, "relating to right to return", which makes the free look period an eligibility condition for Medicaid asset protection rather than a consumer nicety.

The estate-recovery limb is structured as an exception to an exception, and it should be read as a chain. Clause (C)(i) requires a state to seek recovery from the estate of an individual who received benefits under a long-term care insurance policy in connection with which assets were disregarded. Clause (C)(ii) then provides that clause (i) "shall not apply in the case of an individual who received medical assistance under a State plan of a State which had a State plan amendment approved as of May 14, 1993, and which satisfies clause (iv), or which has a State plan amendment that provides for a qualified State long-term care insurance partnership (as defined in clause (iii)) which provided for the disregard" of assets to the extent of policy payments. Read in order, the effect is that under a modern partnership the disregarded amount is protected from estate recovery as well as from the eligibility test. CMS puts the same point in operational terms: a participating state "must also allow, in the determination of the amount to be recovered from a beneficiary's estate, for the same amount to be disregarded." Note separately that paragraph (3)(A), which requires states to waive this subsection where it would work an undue hardship, applies to the subsection "other than paragraph (1)(C)".

Producer training is a condition, not an afterthought, and its content is a clue to the product's difficulty. NAIC's Long-Term Care Insurance Model Act requires at section 9 a one-time course of no less than eight hours and ongoing training of no less than four hours every 24 months, covering among other things "the relationship between qualified state long-term care insurance Partnership programs and other public and private coverage of long-term care services, including Medicaid". A program that needs a mandated curriculum before anyone may sell it is one where the buyer should expect the interaction between the policy and Medicaid to take some reading.

A person buys a long-term care policy that the state has certified as meeting the seven statutory conditions. Care begins, and the policy pays benefits; the issuer reports the amounts paid to the Secretary as the statute requires. If the policy is eventually exhausted, or its benefit period ends, and the person needs Medicaid, the state disregards countable assets in an amount equal to the benefits paid. The person must still satisfy every other Medicaid eligibility rule, including the income test and the transfer look-back. When they die, the state applies the same disregard to the amount it may recover from the estate.

A hypothetical example of the arithmetic. Suppose a partnership policy pays $180,000 of benefits over three years of care before it is exhausted. The claimant then applies for Medicaid holding $250,000 in countable assets. Because $180,000 is disregarded, only $250,000 minus $180,000, or $70,000, has to be spent down to reach the state's resource limit. Later, the state may recover from her estate only after disregarding the same $180,000. Had the policy paid $60,000 before she recovered and no more, the protected amount would be $60,000 and $190,000 would have to be spent down. The protection tracks what the policy did, not what it might have done.

Two implications follow that a buyer should hold in mind before purchase. Because the shelter equals benefits paid, a policy with a longer benefit period or a higher daily maximum can shelter more, so the coverage decision and the asset-protection decision are the same decision. And because a policy that is never claimed on shelters nothing, the program is not a way of converting premiums into protected assets. It is a way of ensuring that a claim, if it comes, does not leave the household worse off than it would have been for having insured.

Pros

• The disregard applies to Medicaid estate recovery as well as to the eligibility test, which is the protection the pre-2005 arrangement lacked.
• The amount is measured mechanically against benefits paid, so it is calculable rather than discretionary.
• The qualifying conditions force real coverage: an Internal Revenue Code section 7702B(b) contract, and compound inflation protection for buyers under 61.
• Because a partnership policy must be a qualified long-term care contract, its premiums count as medical expenses for tax purposes, subject to an age-based annual cap published by the IRS.
• Producers must complete mandated training on how these policies interact with Medicaid before selling them.

Cons

• The amount protected is unknown at purchase, because it depends on benefits the policy may never pay.
• It protects assets, not eligibility. Every other Medicaid rule, including the income test and the transfer look-back, still applies.
• Whether a program exists, and how it treats someone who moves, depends on state action rather than on the policy.
• A buyer under 61 who declines compound inflation protection does not have a partnership policy, and may not discover it until they apply for Medicaid.
• Long-term care coverage is generally guaranteed renewable rather than fixed-price, so premiums can be raised on a class basis long after purchase, and the partnership feature does nothing to change that.