An Introduction to Long Term Care Partnership Programs

1. An Introduction toLong Term Care Partnership Programs Produced by The National Association of Health Underwriters Long Term Care Advisory Group

2. What is a Long-Term Care Partnership Program? • Why is a Partnership Program important?

3. Endorsed by state • Help consumers see LTC Insurance as ASSET PROTECTION • Provide relief for the Medicaid program • Should assist in making long-term care sales

4. How do partnership plans accomplish this? • It all comes down to who will be responsible to pay for long-term care expenses incurred in the future.

5. WHO PAYS NOW? • State governors’ concerns today focus on rising Medicaid costs • Medicaid: 47 percent • Out-of-pocket: 21 percent • Medicare: 17 percent • Private LTC insurance: 10 percent • Other: 5 percent

6. Let’s recap: Medicaid: • Is 1965 public program for the poor • Has now become the default payer of LTC costs • Approves people either through the spend- down process or by artificialqualification

7. MEDICAID • Generally pays for nursing home care • Nursing home care is the primary driver today of increased Medicaid expenses • Factor in the Boomers, and …

8. … SOMETHING HAS TO GIVE

9. MEDICAID AND LTC • Medicaid’s problems are not new • Evidence in early 1980s that growing LTC expenses would over-burden this public program for the poor • Study was appointed in the 1980s to investigate possible solutions to the coming crisis

10. RWJ FOUNDATION • The Robert Wood Johnson Foundation commissioned a study in the 1980s • Report issued in 1987

11. RWJ FOUNDATION • The RWJ Foundation concluded that the best path for Medicaid to avoid a continued run-up in LTC expenses was to encourage consumers in the matter of personal responsibility by purchasing private LTC insurance to take the pressure off the Medicaid program.

12. LTC PARTNERSHIP PROGRAMS • The result of this “encouragement” were insurance plans called LTC Partnership Policies • States would give specific approval to LTC insurance contracts meeting certain standards

13. THE PARTNERSHIP PREMISE • To reduce Medicaid expenditures by delaying or eliminating the need for people to rely on Medicaid • Encourage purchase of private LTC insurance by giving an incentive for the consumer to buy

14. CONSUMER INCENTIVE • By purchasing a LTC policy sold through the Partnership, asset protection from Medicaid would equal the amount of LTC insurance coverage • This amount of assets would not have to be spent down to qualify for Medicaid

15. EXAMPLE • Consumer buys private LTCI with a total benefit value of $250,000 • Consumer needs care • Consumer uses LTCI first • If they use up the entire $250,000, their application to Medicaid will allow them to keep that amount in addition to their primary protected assets like the home and car

16. Based on the RWJ Study, four states decided to formally develop partnership programs and encourage consumers to buy LTC insurance • Two distinct models emerged

17. PARTNERSHIP MODELS • Dollar-for-dollar: dollar value of the protected assets equals the dollar value of benefits paid by LTC insurance contract • Total Assets model: Required purchase of set minimum LTC coverage (6 years total) in exchange for complete protection of all assets

18. THE FOUR STATES • Connecticut: dollar-for-dollar model • California: dollar-for-dollar model • New York: total asset protection • Indiana: hybrid of the two

19. WHY NO MORE STATES? • Concern that a public program was endorsing private insurance • Believed it would increase Medicaid costs rather than reduce them by drawing attention to the program’s coverage • Would mostly benefit wealthier individuals who could afford the private insurance

20. OBRA 1993 • The Waxman Amendment • Prevented states from acquiring the Medicaid waiver necessary to activate a partnership plan • Iowa was stopped in mid-development

21. WHAT HAS BEEN THE RESULT FOR THESE FOUR STATES? • Average age of partnership policyholders is between 58 and 63 • Majority of policyholders held assets greater than $350,000 (excluding home) • Majority of policyholders had average monthly incomes of $5,000 or more

22. WHAT HAS BEEN THE RESULT FOR FOUR STATES? • Over 180,000 policies purchased • Over 2,000 claims • Less than 5 percent ultimately applied for Medicaid

23. CONNECTICUT • Latest year surveyed: 2003-04 • 34 percent of purchasers of partnership plans had assets between $100,000 and $350,000 • Average total benefit: $247,394 • 97 percent were first-time purchasers

24. NEW YORK • Now offering 4 different partnership models • 2 Total Asset Protection • 2 Dollar-for-Dollar • Still have minimum specified benefits, but now drawing broader appeal

25. CALIFORNIA • Average age at purchase: 57 • 56 percent were female • 97 percent were first-time purchasers • 38 percent bought policies with a minimum 5-year benefit period

26. INDIANA • Hybrid model: • Total asset protection if purchase made for benefit amount of $188,000 or greater • Dollar for dollar protection for policies less than $188,000

27. DEFICIT REDUCTION ACT OF 2005 • 1993 ban on LTC Partnership Programs lifted and • Changes made to Medicaid eligibility

28. DEFICIT REDUCTION ACT OF 2005 • LTC goals were: • Make it more difficult to qualify for Medicaid program artificially, and • Encourage people to look to another source for LTC expense funding

29. DRA ’05: NEW MEDICAID RULES • All transfers must occur 5 years prior to Medicaid application date • Penalty period now imposed from the date of Medicaid eligibility – not the date of the actual transfer

30. ASSET TRANSFERS • Medicaid application date: August 1, 2006 • Look-back window: retro to August 1, 2001 • Transfer of $180,000 made February 1, 2002 • Penalty! $180,000 divided by $3,300 = 54 months • Penalty used to be measured from date of transfer – 2/1/02 + 54 months = eligibility on 8/1/06 • NOW – Penalty applied as of 8/1/06 – eligibility will be on 2/1/2011

31. NEW MEDICAID RULES • Medicaid application can now be denied for person with home equity greater than $500,000 ($750,000 in some states) • Annuities are now assets. Policyowner’s state of residence now required to be listed as a remainder beneficiary.

32. NEW PARTNERSHIP ACTIVITY • Now – there will be more than FOUR states • Federal Medicaid waivers will be granted • Each state that wants to offer LTC partnership policies must file a state plan amendment with the Department of HHS • Unless related to this process, no additional state legislation is necessary

33. STATE PLAN AMENDMENT • Policies cover state residents • Policies are tax-qualified • Policies adhere to NAIC provisions • Policies contain specified inflation options • LTC agents have appropriate training • Insurers subject to reporting requirements

34. WHO’S READY TO GO? • Colorado Massachusetts • Florida Michigan Oklahoma • Georgia Minnesota Pennsylvania • Idaho Missouri Rhode Island • Illinois Montana South Dakota • Iowa Nebraska Virginia • Maryland New Jersey Washington

35. GRANDFATHERED • Connecticut • California • New York • Indiana

36. CMS TEMPLATE Clarification of: • Inflation protection (ages 61+) • Exchanges vs. grandfathering • Reciprocity • Agent training for certification • Uniformity