Interest rate slump rocks Pa. LTC Partnership Program

The Pennsylvania Insurance Department is responding to the prolonged slump in interest rates by cutting the amount of inflation protection consumers have to buy to qualify for the state’s Long Term Care Partnership Program.

To participate in the program, state residents now need to buy coverage with inflation protection equal to the Consumer Price Index or a fixed rate of just 1 percent.

Previously, the state required partnership program participants to get coverage with at least 3 percent of annual inflation protection.

The change took effect Friday, when the department published the change in the Pennsylvania Bulletin.

Related: Higher interest rates and LTCI: What to know

A state partnership program gives a state’s residents an incentive to buy private long-term care insurance, by letting long-term care insurance holders who run out of private benefits get Medicaid nursing home benefits on unusually favorable terms.

The federal government let four states set up long-term care partnership programs in the 1980s. The Deficit Reduction Act of 2005 later let all states offer partnership program options.

The legislation requires qualified policies to provide at least some inflation protection, and some states require 3 percent or 5 percent compound inflation protection for at least some program participants.

Pennsylvania still requires the insurers selling the policies that qualify for the state’s partnership program to offer a 5 percent inflation protection option.