Many people are unaware of a joint federal/state program that provides additional asset protection. As people start planning for their future retirement addressing the high costs of long-term health care becomes an integral part of the planning equation. Therefore, this partnership program was created as a way consumers can protect assets with certain qualified long-term care insurance plans.
The Long-Term Care Partnership Program is a public-private partnership between states and private insurance companies, designed to reduce Medicaid expenditures by delaying or eliminating the need for some people to rely on Medicaid to pay for long-term care services
In the late 1980s, four states adopted a partnership program on a test basis with funding received from the Robert Wood Johnson Foundation. California, Connecticut, Indiana, and New York were the original four states selected to participate.
Deficit Reduction Act
In 2005 President Bush signed the Deficit Reduction Act (DRA). The DRA authorized the remaining states to allow insurance companies to offer Partnership policies. These policies extend the benefits purchased by offering additional dollar-for-dollar asset protection or what is referred to as asset disregard.
A policyholder receives a dollar for asset disregard for every dollar an insurance company pays for your future long-term care. An owner of a Long-Term Care Partnership policy allows the policyholder who exhausts their LTC policy benefits to access Medicaid without the required "spend-down" of assets that is normally required.
For example, Fred in Pennsylvania purchases a partnership Long-Term Care Insurance policy at age 52. It features an initial $150,000 pool of money, with an initial $4000 a month, both growing 3% compounded every year (the benefits – not the premium).
When Fred is 82, he requires long-term care services. His benefit is now worth $364,089.40, with a monthly benefit of $9709.05. While in most cases that would be plenty of benefits, Fred has Alzheimer's and exhausts all his benefits. Since the benefits still increase even as he spends his benefits for his care, let's say by the time he exhausts his policy benefits the insurance company paid out $400,000.
The problem is Fred is still alive and still requires care. Pennsylvania requires a person to have no more than $2400 to qualify for Medicaid. However, since Fred had a partnership policy, they will disregard the $400,000 the insurance company paid in the calculation. If he has less than that amount, he would qualify for Medicaid and still be able to keep the $400k. Otherwise, the spend-down will disregard the $400k and will be less painful.
"The partnership is the best-kept secret in long-term care insurance. If I were selling it, it would be the only thing that I would advocate."Jesse Slome, executive director of the American Association for Long-Term Care Insurance (AALTCI) a national consumer education and advocacy group.
Since many people move after they retire, most states will reciprocate. Reciprocity means not only are your benefits portable wherever you may move to the additional dollar-for-dollar asset protection of the partnership program will also be honored in most states.
This link shows a map so you can see the states which will honor your state’s partnership program:
Perhaps the Biggest Secret in Retirement Planning
The Long-Term Care Partnership program is perhaps one of the best-kept secrets in retirement planning. Most financial advisors are unaware of are the asset protection provided by the program. Too often, financial advisors ignore the risk of long-term care expenses and their impact on lifestyle and legacy.
Even a small Partnership Long-Term Care Insurance policy will not only provide money for quality caregivers but will give you some asset protection. This way, you know you won’t lose everything, even if you exhaust all your policy benefits.
Since the risk of needing some type of long-term care service is very high and gets higher as you get older, having some way to address this risk will benefit your family.
Best Time to Obtain LTC Coverage is Before Retirement
Policies are affordable, especially if you obtain one before you retire. Most experts suggest starting your research in your 40s or 50s when you can enjoy low premiums and perhaps qualify for good health discounts.
The cost of Long-Term Care Insurance will be higher if you wait until you are older to obtain coverage. However, perhaps the biggest concern is your health. You may have health issues that limit your ability to get coverage or make it much more expensive.
More information on the partnership program can be found by clicking here.