Since 2006, Partnership LTCI has spread across the nation. There have been isolated partnership sales in New York, California, Indiana and Connecticut for over 20 years; however, the Deficit Reduction Act (DRA) passage opened the door for national expansion of the Partnership program. To date, all states with the exception of Alaska, Hawaii, New Mexico and Mississippi have embraced this new DRA Partnership opportunity.
What is Partnership LTCI?
Partnership-qualified LTCI policies must meet certain simple requirements: They must be tax-qualified, and they must offer inflation protection based on specific age brackets at the time of purchase. In addition, the policy must meet the requirements of the 2000 NAIC Long-Term Care Model Act and Regulation.
Meeting these qualifiers did not require new product development, but it did require the carriers to submit their product(s) to each state for Partnership-qualification certification. Due to independent state approval processes, product certification has taken time to implement, and not all carriers and their products are officially certified in every state.
The effective date of Partnership-qualified products varies greatly from one state to the next. This inconsistency can cause some agent and client concerns about whether they should replace an older, non-Partnership qualified policy with one that is qualified. In addition, most states require carriers to offer existing in-force policies an exchange for a Partnership-qualified policy. The exchange offer dates tend to vary greatly from state to state, but it is certain that we will see more offers in the coming months and years as states implement their programs.
Policy exchange: Pros and cons
What does it mean to be offered an exchange opportunity? Should this be considered, or is it a bad idea? There is no one answer for every client situation. In my opinion, however, it would very rarely be beneficial for a client to exchange their existing policy for a newer, Partnership-qualified version. In most cases, the exchange will increase the premiums (often dramatically) and the potential added benefits may not be worth the added cost.
Over the past several years, we’ve seen higher rates due to the aging of the insured and new generation policy versions, but replacement activity is rarely seen in the LTC industry. Although there have also been rate increases to existing policies, rarely can the client justify replacing their older policy for a newer one due to these pricing realities.
In one respect, the offer to exchange a non-Partnership policy with a newer, Partnership-qualified policy has the same implications and effect as these rate increase scenarios. The added premium costs make an exchange difficult to justify. However some may still argue that the benefits of Partnership eligibility may be worth the expense. Once again, in my opinion, this will not be true in most situations.
The intentions of the Partnership program are virtuous and I want to believe that the benefits proposed with the program will be realized. However, the fact is that government programs, particularly entitlement programs such as Medicaid, are subject to frequent and dramatic changes.
At this time the Partnership program provides dollar-per-dollar asset protection for benefits paid through a Partnership policy, thus preserving those assets from Medicaid spend-down requirements. This may allow your clients the ability to enter Medicaid and still preserve some of their hard-earned assets to pass along to their heirs. Be aware, however, that income restrictions are still imposed upon Medicaid applicants. In addition, any and all countable assets above the specified amount for preservation are still required to be spent down before the client will be eligible for Medicaid.
The future outlook
Assuming absolutely no changes to either the Medicaid program itself or to your client’s asset and income levels, it is likely that many of your clients will not actually benefit from involvement in this entitlement program. Changes to Medicaid rules could have a drastic and devastating effect on a plan depending on these types of assumptions. It must also be noted that even if the client does get through all the eligibility requirements, they will then become wards of the state and only receive minimal care in facilities that accept Medicaid payments. This picture is not satisfactory, particularly for those who have been financially responsible for their entire lives.
I don’t intend to imply that the purpose of the Partnership program is not noble. However, the reality is that program changes, some of them dramatic, are inevitable. Reliance upon such volatile programs is irresponsible, at best.
The best solution to recommend to your clients is to purchase the best LTC coverage they can reasonably afford and not rely upon or otherwise count on anything specific from government programs such as Partnership or Medicaid. If some semblance of what we now know of these programs does still exist in the future, they will have come out ahead. To recommend the purchase of a Partnership policy, or to recommend exchanging an existing policy for a Partnership version, must be done only with a clear understanding of the impact the future may bring to this strategy.
Scott D. Boyd is vice president of LTC for The National Benefit Corp. He can be reached at [email protected].
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