A new federal law that includes provisions bolstering long term care insurance is the latest step in the product’s acceptance in serving our aging population.
Signed by President Bush earlier this year, the Deficit Reduction Act of 2005 gives insurers and distributors an immediate opportunity to discuss with clients changes in Medicaid that make planning for LTC more important than ever.
In addition, it provides future opportunities to discuss the benefits of LTC partnership policies, which now will be nationally available. For now, implementation of the partnership piece of the legislation is just getting under way.
Taken as a whole, the new law underscores government support for the idea that private industry will assume the lead in providing for the LTC needs of Americans. It is an important step in establishing the legitimacy of long term care insurance once and for all.
One important provision in the DRA makes it more difficult for people to rely on Medicaid for their LTC needs, closing a loophole that allowed individuals to gain eligibility for state aid by transferring or divesting assets. This is a group for whom Medicaid was not originally intended.
More importantly, the law allows LTC partnerships to expand nationally, effectively repealing an amendment to a 1993 law that prohibited new partnership programs. The four existing state partnership programs–in California, Connecticut, Indiana and New York–are allowed to continue under the law.
Partnership policies are compelling for consumers because they allow purchasers to protect their assets–equal to the dollar value of their policy–before qualifying for Medicaid. Having this protection available across the country should spur demand for the product, because it means more Americans can buy smaller, more affordable LTC insurance policies, knowing they can rely on Medicaid when private coverage is not enough.
The larger promise of partnership policies is that they will appeal to a new cohort of applicants and ease the pressures on Medicaid. In the four states with the partnership programs today, more than 225,000 policies have been purchased, but fewer than 150 policyholders have exhausted their benefits and drawn on Medicaid. These policies already have shown that partnerships can achieve dual goals: protecting policyholder assets and saving money for the states.
Another benefit of the partnership legislation: It provides funds for consumer awareness campaigns about the availability of partnership policies and about the need for LTC insurance. The federal appropriation for this campaign is $3 million a year in fiscal years 2006 through 2010.
DRA also cuts the administrative burdens of existing partnership programs for both carriers and the states. It requires partnership policies to be tax qualified, to meet specified consumer protection standards and to provide some amount of compound inflation protection for individuals age 60 or younger.
The LTC insurance story