As we age, we want to know that our health, loved ones, and estates will be taken care of. Unfortunately, this can be challenging—especially if you want to keep your savings and assets.
Our desire to protect our assets and access quality care services may lead us to Long-Term Care Insurance. Still, we may still have concerns about using all the benefits within our policies. But what if there was a way to protect yourself if your Long-Term Care Insurance benefits ever ran out?
This protection comes in the form of the Long-Term Care Insurance partnership program. The partnership program does many things. Most notably, it helps policyholders qualify for Medicaid coverage if they use all their LTC Insurance benefits. They can qualify without losing their savings.
LTC News consults with Long-Term Care Insurance specialists. We create FAQ articles like this one to educate people on aging, caregiving, retirement planning, long-term health care, and Long-Term Care Insurance.
This article discusses common questions about the federal partnership program. We'll explain the partnership program and why it's a valuable part of retirement planning.
How & Why Did The Partnership Program Start?
The federal government established the Long-Term Care Insurance partnership program in the 1990s. This program allowed people with specific LTC Insurance policies to qualify for Medicaid if they exhausted their benefits. Individuals could qualify easily and protect their assets and savings.
When the partnership program began, only a few Americans had bought Long-Term Care Insurance or planned for long-term care costs. Many people relied on their families or savings to cover long-term care costs. Unfortunately, many individuals lost their savings and assets paying for care and spending down to meet Medicaid requirements.
The partnership program's goal was to encourage people to plan for long-term health care costs with insurance. It was intended to protect people from losing everything to the cost of long-term health care. It also relieved stress on Medicaid because more people planned ahead and bought partnership Long-Term Care Insurance.
Before spreading nationwide, the government tested the partnership program in four states:
- New York
The program was very successful in these first states. Other states wanted to join, so the government stepped in again with a nationwide partnership program.
What Was The Deficit Reduction Act?
The Deficit Reduction Act of 2005 created a federally regulated partnership program, allowing all states to participate. Today, a majority of states take part in the program. These states are sometimes referred to as partnership states.
This act also closed Medicaid loopholes. In the past, many people transferred their assets to family members to meet Medicaid income and asset requirements. This allowed people to qualify even if they had just transferred assets. These people cheated a system designed to help the needy.
The Deficit Reduction Act extended Medicaid's look-back period to 5 years. Your state’s Medicaid agency will review your income, assets, and transfers during this timeframe.
But how are look-back periods and Medicaid connected to the partnership program? Individuals with partnership policies are eligible for Medicaid if their Long-Term Care Insurance benefits run out—regardless of income. We'll discuss partnership policies in more depth below.
What Is A Long-Term Care Insurance Partnership Policy?
Partnership policies are traditional Long-Term Care Insurance policies that meet federal and state guidelines. These policies act like regular LTC Insurance policies until you use all or most of the benefits in your policy.
While not common, it is possible to use all of the benefits within your Long-Term Care Insurance policy. When this happens, a partnership policy allows you to qualify for coverage through Medicaid without exhausting your assets.
Partnership policies do not cost more than regular Long-Term Care Insurance policies. However, depending on your age, you may need to add an inflation rider to your policy. Inflation riders add a cost to the premium.
With a partnership policy, you can qualify for Medicaid without spending down or using your assets to pay for care. Partnership policies essentially protect you from losing everything when qualifying for Medicaid. We’ll discuss spend-downs and Medicaid coverage in the next sections.
What Happens When You Need Care Without A Partnership Policy?
So how can you qualify for Medicaid without a partnership policy? Well, if you don't have a partnership policy and you still need care, you usually only have one option: to use your income, savings, and assets to pay for care until you qualify for Medicaid.
In most states, the only way to qualify for Medicaid without a partnership policy is to spend down to $2,000. Here’s a site that lets you compare spend-down requirements in each state.
This means you'll have to use your income and assets to pay for care until you’ve reduced all of your assets to $2,000 total. Spending down is the only way to meet Medicaid requirements without a partnership policy.
Partnership policies allow you to avoid spend-downs. You can shelter your assets based on the total amount paid out by your partnership policy.
Without a partnership policy, you can't avoid a spend-down by transferring your assets to family and friends due to the Deficit Reduction Act. This means any assets transferred within 5 years of getting Medicaid will still be considered yours. Individuals with asset transfers over the limit can not qualify for Medicaid.
Individuals with partnership policies are free from look-back periods and Medicaid spend-downs. However, individuals with partnership policies may have to spend down if their assets are greater than their policy's payout.
Dollar-For-Dollar Asset Protection
Partnership policies protect individuals' assets for every dollar paid out by their policy. This is called dollar-for-dollar asset protection or asset disregard.
For example, let's say your Long-Term Care Insurance policy paid out $300,000 in benefits, and no more money remains in the policy. Let's say you also have $400,000 in assets.
With a partnership policy, you would only have to spend down by $98,000 to qualify for Medicaid. Without a partnership policy, you would have to spend down by $398,000 to qualify. Essentially, you'd lose everything without a partnership policy.
For those with spouses, there's also a spousal allowance that varies by state. The spousal allowance can help individuals spend down by even less.
Partnership policies buffer and sometimes eliminate spend-downs. They shelter individuals' estates for every dollar paid out by their policy. They also protect individuals from other worries, such as estate recovery. We'll talk about this below.
Protection From Estate Recovery
Partnership policies prevent Medicaid estate recovery. Estate recovery is when the government takes a Medicaid beneficiary's estate. This happens after the beneficiary or their last living spouse passes away.
Estate recovery acts as reimbursement to the state for the cost of care. While Medicaid beneficiaries are alive, they can receive Medicaid benefits at no cost. After they pass away, the government has the right to their estate.
Partnership policies protect individuals and their families from estate recovery. Individuals with partnership policies do not have to worry about paying back Medicaid care costs. This frees families from some of the financial burdens of long-term health care.
How To Qualify For A Partnership Policy
There's no separate application for a partnership policy. However, you have to get a partnership policy when you first apply for insurance. Most of the time, you cannot switch from a regular policy to a partnership policy after coverage begins.
As we discussed earlier, partnership policies are traditional Long-Term Care Insurance policies. This means other policy types, like hybrids, aren't eligible to be partnership policies under federal law.
To learn more about hybrid policies, read our article on types of LTC Insurance policies. This FAQ discusses the differences between a traditional and hybrid policy so you can choose the coverage that works best for you.
Every partnership policy must meet specific requirements to qualify. Requirements can vary by state. Depending on your age, you'll likely need to meet an inflation rider requirement. We'll break down age-related inflation benefits riders in the next section.
Age-Related Inflation Riders
All partnership states require some sort of inflation rider. The requirements depend on the age you buy the policy. These are called age-related inflation riders. Some states may have stricter rules than others.
Inflation riders are policy add-ons that increase the benefits within the policy by a specific guaranteed percentage each year. The goal is to increase benefits to offset the increasing cost of long-term health care. Inflation riders help extend private LTC Insurance coverage for as long as possible.
Here's an example of requirements for inflation riders based on age for some partnership states. Keep in mind you can always have more inflation than your state requires, but never less. Requirements vary by state, so this table does not represent every state.
An Example of the Minimum Inflation Rider Requirements For The Partnership Program In Some States
Minimum Inflation Rider Requirements
60 and younger
At least 1% or 3% annual compound inflation rider
61 to 75
At least 1% annual compound or simple inflation rider
75 and older
No mandatory inflation rider
Please Note: Each partnership state has different minimum inflation rider requirements. Some states like California even require 5% inflation riders for the 60 and younger age bracket. The example above is only meant to represent some partnership states.
Future Purchase Options Do Not Qualify
You may have heard of an inflation option called a "future" or "guaranteed" purchase option. This option only sometimes meets the partnership program requirements.
Guaranteed purchase options are not true inflation benefits. Instead of increasing benefits automatically, the future purchase option asks if you'd like to buy more benefits each year. Each time you buy more benefits, it adds an extra cost to your premium.
Since future purchase options don't renew automatically, they don't qualify as inflation benefits for partnership policies.
Grandfathered Partnership Policies
Grandfathering is when a regular Long-Term Care Insurance policy turns into a partnership policy. This is available for some older policies issued before the partnership program.
When a state joins the partnership program, existing policyholders may want to access partnership benefits. This is where grandfathering comes in.
If your policy meets the state's partnership requirements, it could be granted partnership status. Most of the time, this means having the proper inflation benefits. Grandfathering comes at no extra cost.
When a state becomes a partnership state, it will be announced if any previously issued policy will be grandfathered. Generally, policies must be issued during a certain time frame to be eligible. Your insurance company will notify you if your existing policy has been granted partnership status.
What Happens To Your Partnership Policy If You Move?
A common question about coverage is, "What happens if I move to another state?" Most partnership policies keep their value and dollar-for-dollar asset protection when you move to a different state.
It's up to states to determine how they treat out-of-state partnership policies. Most states honor the partnership benefits if their policy was a partnership policy in the individual’s previous state of residence. However, there are a few exceptions.
For example, California is the only partnership state that does not offer reciprocity. Reciprocity lets you keep your partnership policy benefits when you move. States that do not participate in the partnership program do not offer reciprocity.
In the sections below, we'll cover:
- Moving from a partnership state to a non-partnership state
- Moving from a non-partnership state to a partnership state
Moving From A Partnership State To A Non-Partnership State
If you move to a non-partnership state with a partnership policy, you will lose your partnership benefits. This means you will have to spend down to qualify for Medicaid if you ever use all your insurance benefits.
This happens because states without partnership programs cannot offer reciprocity. However, you can still keep your regular Long-Term Care Insurance coverage and benefits no matter what state or U.S. territory you're in.
The only way to get partnership benefits back is to move back to a reciprocal partnership state. If you move back to a reciprocal state, that state will honor your partnership benefits. Although you’d have to move back before using all the benefits within your policy.
Moving From A Non-Partnership State To A Partnership State
You may wonder what happens when you move from a non-partnership state to a partnership state. Would you be able to get a partnership policy or benefits?
Suppose you bought a traditional Long-Term Care Insurance policy in a non-partnership state. Let's say you move to a partnership state a few years later, keeping the same policy.
Even though you're in a partnership state, you still do not have a partnership policy.
In most cases, you cannot transfer a regular Long-Term Care Insurance policy to a partnership policy. The only way to get a partnership policy is to apply for an entirely new policy. This may be difficult, depending on your age and health.
This is because of the way policies are legally filed. Every company has to file its policies with the state. Each policy that qualifies for the partnership program must be registered and certified as a partnership policy within its respective state.
This means states that don’t participate in the program can’t certify policies as a part of the partnership program. There is currently no way to register these policies in non-partnership states. So unless you get new coverage, you can't switch your policy when you move states.
RELATED:How Does Moving States Impact Long-Term Care Insurance?
What Is Coverage Like Outside of the United States?
Long-Term Care Insurance benefits are good no matter where you are in the United States. Partnership benefits are good in any reciprocal partnership state.
But what is coverage like when you move outside the United States? Well, it depends on the company. Some companies offer regular benefits outside the U.S. and in U.S. territories. However, partnership benefits are not available outside of partnership states.
Why Is The Partnership Program Important?
Partnership policies protect policyholders from the increasing cost of long-term health care. They provide dollar-for-dollar asset protection on top of regular benefits. Policyholders can rest easy knowing they'll never lose assets to the cost of care.
Partnership policies have shielded many people from large long-term care expenses. It acts as a safety net at no extra cost to policyholders. It's a program to incentivize families and help taxpayers and those who do not own policies by reducing pressure on the Medicaid program.
As you continue exploring Long-Term Care Insurance, you may have questions about your situation. Professionals like Long-Term Care Insurance specialists can help answer these questions. And if you're ready to learn about your options, specialists can help you navigate that process.
Here are a few resources that may be able to help:
Does Your State Have a Partnership Program?
Forty-five states participate in the federal partnership program.
The following states currently don’t participate in the federal partnership program:
Massachusetts doesn’t participate in the federal partnership program, but it does have its own state-specific program.