Thanks to the passage of a special public-private partnership program as part of the Deficit Reduction Act of 2005, there’s a new incentive to purchase long term care insurance.
Several states are starting to take interest in these partnerships between private long term care insurers and state Medicaid programs. In order to take full advantage of this opportunity for your clients, it’s important for you to gain a good understanding of the new offering.
For individuals who purchase LTCI through the partnership program, Medicaid will cover long term care services once benefits have been paid by private insurance – without requiring the individual to spend down assets.
In most states, Medicaid requires individuals to spend their assets down to about $2,000 to qualify for long term care benefits. With nursing home costs averaging $70,000 annually, it doesn’t take long for the average person to deplete his retirement savings in order to qualify for Medicaid. However, rather than wiping out a lifetime of savings, partnership programs allow LTCI policyowners to protect a dollar of assets for every dollar paid out in long term care policy benefits. Insurance carriers track policyowners’ coverage and report to the states when the insured goes on claim.
So, for example, $100,000 of benefits paid under a LTCI policy would protect $100,000 of assets from Medicaid’s spend-down requirements. Under this program, the policyowner could receive Medicaid benefits and, in this scenario, keep $100,000 in assets.
In order to participate in the program, states must receive approval of a Medicaid plan amendment from the Center for Medicare and Medicaid Services. Upon approval, the federal government will provide guidelines for the implementation of a partnership program. Insurance carriers must file their LTCI policies with state insurance departments for certification to participate in this program. One of the most significant policy requirements is that qualifying coverage must include compound inflation protection for individuals age 60 and under. Additionally, individuals between the ages of 61 and 75 must have some form of inflation protection in their coverage.
What are the advantages of this program?
There are several positive factors that may make qualifying plans attractive to you and your clients:
Currently marketed policies can qualify
Product requirements can be no more stringent than that of regular LTCI plans. There are no additional state regulations that would change the coverage that insurers now offer. So, there’s no need for agents to learn new products. That means carriers can implement partnership programs rather quickly.
Use existing point of sale materials
Agents can continue to use existing point of sale materials that outline coverage and include applications. This eliminates the need to carry separate materials into the sales situation. Certificates placed in the insured’s policy will explain details regarding the partnership program.
Flexible inflation protection requirements
Inflation protection requirements for the partnership program vary by age. According to federal guidelines, compound inflation protection is required for applicants age 60 and under. Any form of inflation protection is acceptable for ages 61 to 75. States can be more specific in their requirements; however, the partnership program gives you flexibility in selecting inflation benefits for your clients. Insurance carriers offer various forms of inflation protection. Some will qualify for partnership certification and others will not. So, it will be important to check with the carrier to determine which inflation protection features are applicable based on the age of the applicant.
The federal program allows for reciprocity, meaning insured members can move from one partnership state to another and continue to receive asset protection. However, the asset protection only applies in states that have enacted a partnership program. Also, states can opt out of the reciprocity portion of this program. If your clients are considering moving to another state, you may want to check with that particular state to verify it has a partnership plan in place and that it accepts reciprocity.
Avoid gaps in benefits
Since the application process for Medicaid can take several weeks or more, the partnership program allows an insured to apply for Medicaid while still receiving benefits under his LTCI policy to prevent gaps in benefits. Keep in mind that asset protection under the partnership program is determined by the amount of benefits paid under the insurance policy at the time of application for Medicaid. So, it is important to note that if benefits are not yet paid in full at the time of Medicaid application, some asset protection may be lost.
Clients who purchased LTCI before partnership program
Federal guidelines allow for policy exchanges for those policyowners who purchased coverage prior to the partnership effective date. The details of these exchanges are up to each state. However, some states will remain silent regarding the issue, which means that the decision is up to each carrier. Other states will have specific regulations. Some existing policies will be eligible without any policy amendments. Those policies are tax qualified plans that meet 2000 NAIC Model Regulation requirements and meet appropriate inflation protection guidelines, which are the same guidelines required for new business.
More than 25 states have submitted their state plan amendment. The first states to receive approval are Florida, Idaho, Minnesota and Nebraska. Others will likely follow. Because premiums and benefits are essentially the same as non-partnership plans, there’s no reason not to market partnership plans if you do business in a participating state. However, there may be some adjustments in how you work with your clients.
Remember, partnership plans make the need for unlimited or lifetime benefit period plans unnecessary because Medicaid will pick up where insurance coverage ends. You will have to help your clients select a benefit amount that is appropriate for the amount of assets they want to protect.
You will also need to have a good understanding of how Medicaid works. For example, you will want to pay attention to Medicaid income requirements since partnership plans do not protect income. Also, Medicaid coverage for assisted living or home health care varies by state and some states only provide Medicaid benefits for nursing home confinement. More and more states, however, are applying for a Medicaid waiver in order to allow payments for home care or, in some cases, assisted living. It’s important that your client is aware of what types of services are – and are not – covered by Medicaid.
Agent training will be required by all partnership states. Eight credit hours will typically be required the first year and some continuing education will also be required. Insurance carriers, educational entities and trade associations will be developing and filing courses for approval with state insurance departments. Generally speaking, states are allowing training requirements to be met within one year from the partnership effective date.
It’s exciting to see government encouraging individuals to purchase this important product, but it is up to you to help your clients take advantage of it.