With rapidly rising costs, long-term care has become both extremely expensive and a vital aspect of financial planning.
According to the 2018 Cost of Care Survey conducted by Genworth, a major insurance company, the cost of care in the Manchester area for a private nursing home room is $11,741 per month. For the rest of New Hampshire, the cost is $10,159 per month. The high cost of long-term care has burdened not only individuals and families but also state Medicaid programs that step in and contribute to expenses when a person runs out of personal savings.
Though Medicaid covers long-term care expenses for some people, the program has very strict eligibility requirements when it comes to distributing benefits. On the medical side, generally a person must require skilled nursing care, be impaired with Alzheimer’s or dementia or be unable to care for him or herself. To determine whether a person requires help with personal care, Medicaid ties eligibility to activities of daily living such as dressing, bathing and eating.
On the financial side of the eligibility criteria, certain asset and income limits must be met. Individuals must “spend down” their assets in order to become eligible. Keep in mind that states set some of their own eligibility requirements and that states have the right to be reimbursed from a recipient’s estate for any Medicaid payments made on his or her behalf.
To address the shortage in long-term care funding, more states are asking people to plan for their own long-term care needs. If more did so, the risk of impoverishment later in life would decrease, and some of the burden on Medicaid would be relieved. Long-term Care Partnership policies, which are similar to traditional long-term care insurance policies, can be part of the solution.
The Long-term Care Partnership Program is a joint policy initiative between states and the federal government to encourage the purchase of private long-term care insurance. California, Connecticut, Indiana and New York originated the concept of a Partnership program in 1992. Then, in 2005, the Deficit Reduction Act (DRA) authorized all states to adopt long-term care Partnership programs. Many states have done so, including New Hampshire.
States vary in what they require Partnership policies to contain, but all new Partnership policies must meet guidelines set by the DRA. Policies also are not allowed to require an insured person to have a hospital stay before receiving benefits, and any policy issued to anyone under age 76 must include some type of automatic inflation protection. In addition, policies must follow the consumer protection guidelines set by the National Association of Insurance Commissioners Long-Term Care Insurance Model Act. The policy also must be tax qualified and adhere to requirements set by the Health Insurance Portability and Accountability Act (HIPAA).
Partnership policies also have a dollar-for-dollar clause that protects a certain amount of assets from the Medicaid spend-down requirements. In essence, the amount paid by the long-term care insurance contract in benefits is protected from Medicaid spend-down requirements on a dollar-for-dollar basis. This is in addition to any Medicaid limits on asset protection that already apply.
Here’s an example to illustrate this concept: Mary has a long-term care Partnership policy that provides $250,000 of benefits. She enters a nursing home and uses all of the benefits that the policy provides. At that point, Medicaid starts to pay for expenses. According to the Medicaid rules in Mary’s state, Mary would normally be limited to keeping only $2,500 of assets. However, because of the dollar-for-dollar rule for Partnership policy payments, she can now keep $252,500 and still qualify for Medicaid.
An additional benefit of long-term care Partnership policies is that they provide estate protection as well. Medicaid will not attempt to recover benefits after death. However, it should be noted that purchasing a Partnership policy does not guarantee that an individual will automatically qualify for Medicaid.
Purchasers of a Partnership policy will also need to check for portability between states. The asset protection provisions governing a policy purchased in one state won’t necessarily be honored in another state. Check the laws in states that you could possibly need care in prior to purchasing a policy.
There is one last item to watch for: if you have an existing traditional long-term care policy that was active before the Partnership Program was instituted, your policy will not automatically convert to a qualifying Partnership program policy. Purchasers need to check the laws in their state to see if existing policies may be exchanged for a Partnership-qualified one. You will also want to examine the costs of making this exchange.