The History and Development of the Medicaid LTC Partnership
The idea of a "partnership" between private LTC insurance and public Medicaid funding was created by the Robert Wood Johnson Foundation (RWJF) in the late 1980s. It is interesting because at that time, LTC insurance was just finding its way into the "modern era" - moving away from "nursing home insurance" to covering home care, adult day services, and as we moved into the early 1990s assisted living. Carriers and policies were also becoming more "custodial care" friendly - help with ADLs and cognitive issues vs. a more skilled/medical approach.
The RWJF wanted to both promote the purchase of private coverage and reduce the growing burden on state Medicaid programs. And that is the "partnership" in Partnership LTC insurance. RWJF provided grants for states to set up committees and commissions to study and implement the idea. Four states jumped in right away: California, Connecticut, Indiana, and New York.
These "original Partnership" states created a model of having a fully-separate, state-specific form of LTC insurance that would create this partnership between insurance and Medicaid. The new, separate Partnership LTC insurance policies in these states generally looked and felt like any other LTC insurance policy but with some specific benefit requirements, and additional "consumer protection" language. The biggest difference was that the Partnership policies had to include a 5% automatic compound benefit inflation increase provision. ("Regular" LTCI at the time could be issued without any inflation, 5% compound, 5% simple (equal), or 5% "purchase option" inflation riders.)
Partnership LTC insurance had to have built-in inflation, and it had to be 5% compound. The insurance companies that agreed to participate - and a number did - basically took their "regular" LTCI contract and pricing that they were already selling and re-filed it with the specific limitations/requirements that each state's commission wanted in its Partnership coverage. It was extra work, extra filing, etc., for a carrier to have both their "regular" LTC contract and a Partnership contract. This completely separate Partnership policy is still required in all four original Partnership states, and there are only one or two carriers still willing to do it which is a problem. With the withdrawal of MassMutual from the Traditional LTC insurance market at the end of January, 2021, New York will be without any Partnership product available.
The 5% compound inflation requirement was originally put in because the idea was that if a LTC insurance policy's benefit didn't keep up with the rising cost of care over a couple of decades, then the policyholder may have some LTC coverage but could still end up on Medicaid from day one. There would be some state cost savings from the monthly LTC insurance benefit, but they didn't want to grant the Partnership Medicaid asset protections just to have folks end up on Medicaid day-one of a care need. The hope was to delay Medicaid for a least a couple/few years which might prevent a Medicaid benefit payment entirely. And this is indeed what experience has shown has happened!
5% compound benefit increases back in the late 1980s and really through all of the 1990s and early 2000s was the primary inflation option anyway. Lower inflation percentage options (e.g. 3% or CPI-linked increases) didn't really begin to come to market until after 2004 or so.
California and Connecticut opted to use the concept of "dollar-for-dollar" asset protection: Whatever the P-ship policy actually paid out in benefits - including the inflation increases - is the amount of countable assets that would be disregarded for initial eligibility AND would be the amount of assets fully protected from Medicaid estate recovery. (This is the only model available for the "new Partnership," or "DRA Partnership" states that have enabled P-ship after DRA 2005.)
Indiana and New York created an "unlimited asset protection" model. In NY you had to buy a state-mandated minimum daily benefit amount with at least a 3-year benefit period (and the 5% compound inflation), but if you exhausted your LTCI benefits and then applied for Medicaid the state would fully protect an UNLIMITED amount of assets! Indiana had a "hybrid" approach: If you bought the state-mandated minimum (or more), like in NY, then you got unlimited Medicaid asset protection, OR if you bought less, you'd have dollar-for-dollar. Note that both Indiana's and NY's unlimited asset protection provision was grandfathered by the Deficit Reduction Act (DRA) of 2005.
All four original states also created their own, separate Partnership LTCI CE courses (4 to 8 hours) that had to be taken to sell a P-ship contract.
In the 1990s Partnership LTCI was HUGELY popular in these 4 states, with sales of P-ship easily generating more than 50% of all LTCI policies sold ... CT and IN may have been as high as 80% - I can probably find that data, but it's not really relevant today. Just note that the P-ship concept, the option was very attractive to consumers buying LTCI in those states. (Remember, it was all "traditional" LTCI back then.)
Then we hit 1993. OBRA 1993 expanded Medicaid estate recovery to allow states to go after any assets in a Medicaid beneficiaries "taxable estate" vs. just the "probate estate." It's easy to avoid probate, and that's what ELAs helped folks do pre-1993. As part of OBRA '93, Henry Waxman, D-CA, added an amendment that said any new Partnership programs could protect countable assets from eligibility, but NOT from estate recovery. Of course, the Waxman amendment grandfathered the existing P-ship states, including his own CA plan! Waxman's mistaken concern - with little to know actual evidence at the time - was that WEALTHY PEOPLE! would be the ones buying P-ship policies and then going on Medicaid thus using up limited government resources that should be reserved for those truly in need. Of course, no new P-ship plans were enacted after OBRA '93. (MA I think fell into a timing gray area around this time which is why it has the "limited" home equity only protection provisions you've seen and we talked about.)
To Rep. Waxman's credit when the DRA was being debated in 2005, he publicly stood up on the house floor and said he was wrong to have insisted on the amendment to OBRA '93, and he personally sponsored an amendment to DRA removing the 1993 "Waxman amendment" limitation!
From 1988 to 2006 something like 188,000 P-ship LTCI policies were sold (I think that's from CA, CT & IN), and only 88 people both exhausted their coverage and ended up on Medicaid. Partnership LTCI did exactly what the original creators though it would!
(I'll find and forward separately a couple reports on Partnership that show this, and also more recently suggesting that maybe it's not saving states as much as they thought since it really didn't grow the market/increase product penetration beyond folks who would have bought LTCI anyway. So what?! We know that without any LTCI when a family's in crisis they are going to hire an ELA to protect whatever they can as quickly as they can, so I think these "negative" studies have their own biases that don't fully reflect the issues. Also the lack of sales, market growth, is NOT a consumer-demand or product or even a pricing problem it's an advising and sales problem ... but that's another story ...)
After DRA passed, states LEAPED at the opportunity to enact the new enabling Partnership legislation post-DRA. Many states got legislation on the books as quickly as by the end of 2006 with asset protection retroactive to the DRA effective date in February 2006. As my website shows, we now have 44 fully-active Partnership states!
For the most part the federal DRA Partnership guidelines created a more-consistent, single set of rules for all the new states and carriers to follow, versus the state-by-state, separate Partnership commissions, products, etc. The carriers pushed HARD for this uniformity of approach, especially to prevent the requirement of having to create, design, price, file a separate Partnership contract in every state.
"New Partnership" or "DRA Partnership" requirements are these:
1. The insurance carrier must be Partnership certified by the state. Basically the carrier must agree to share sales and policy information data with the state.
2. Agents must be Partnership certified through specific Partnership CE training. DRA mandated an initial 4-hour CE requirement with a 2-hour renewal every two years.
3. Policies must be issued with an issue-age-appropriate level of automatic benefit inflation increases. But, here's a key to why the New P-ship states were able to so easily and quickly launch: It's the exact same product/policy already approved for sale - no extra cost or option or whatever for "Partnership" - just that to be P-ship policy if the contract is issued with at least the minimum-required auto-inflation benefit it would automatically be considered Partnership-qualified!
4. NO mandate of a minimum daily benefit nor minimum benefit period. Congress, the NAIC and states realized that their "cost"/risk was only equal to what a consumer was willing to buy. So $50/day for 2-years with 3% compound inflation after 24 years a claim would pay out in total $73,000 and that was the extent of countable asset protection and estate recovery protection. And even IF the policyholder had to go on Medicaid day-one, the state could offset its monthly costs by the amount of the benefit too.
5. Any/every qualified company/policy issued with the appropriate age-based inflation option/% is automatically given the Partnership endorsement - whether a client wants it or not.
6. Partnership doesn't guaranteed Medicaid qualification - you still have to meet all the other criteria.
Partnership doesn't require that you use Medicaid - it doesn't force anyone onto Medicaid if the P-ship policy's benefit run out either.
NO "hybrid" or "linked-benefit" LTC insurance can be Partnership-qualified; it must be a "traditional" LTCI policy design. That's a federal DRA issue that there is no way around. And it's a significant issue in today's market that's seeing such an exploding of these combo contracts with a dismissal of "traditional" and an almost malpractice-level degree of ignorance of the Partnership benefits!
About 19 states have lowered the P-ship qualifying automatic inflation percentage to just 1%, even under age 60!!! Some other states have kept the 60 and under at 3%, but 61-75 can buy as little as 1% to get P-ship qualification. The idea is, who cares if it keeps up with inflation or not, one way or another, the policy's benefits offsets the state's Medicaid cost/risk!
The RWJF wanted to both promote the purchase of private coverage and reduce the growing burden on state Medicaid programs. And that is the "partnership" in Partnership LTC insurance. RWJF provided grants for states to set up committees and commissions to study and implement the idea. Four states jumped in right away: California, Connecticut, Indiana, and New York.
These "original Partnership" states created a model of having a fully-separate, state-specific form of LTC insurance that would create this partnership between insurance and Medicaid. The new, separate Partnership LTC insurance policies in these states generally looked and felt like any other LTC insurance policy but with some specific benefit requirements, and additional "consumer protection" language. The biggest difference was that the Partnership policies had to include a 5% automatic compound benefit inflation increase provision. ("Regular" LTCI at the time could be issued without any inflation, 5% compound, 5% simple (equal), or 5% "purchase option" inflation riders.)
Partnership LTC insurance had to have built-in inflation, and it had to be 5% compound. The insurance companies that agreed to participate - and a number did - basically took their "regular" LTCI contract and pricing that they were already selling and re-filed it with the specific limitations/requirements that each state's commission wanted in its Partnership coverage. It was extra work, extra filing, etc., for a carrier to have both their "regular" LTC contract and a Partnership contract. This completely separate Partnership policy is still required in all four original Partnership states, and there are only one or two carriers still willing to do it which is a problem. With the withdrawal of MassMutual from the Traditional LTC insurance market at the end of January, 2021, New York will be without any Partnership product available.
The 5% compound inflation requirement was originally put in because the idea was that if a LTC insurance policy's benefit didn't keep up with the rising cost of care over a couple of decades, then the policyholder may have some LTC coverage but could still end up on Medicaid from day one. There would be some state cost savings from the monthly LTC insurance benefit, but they didn't want to grant the Partnership Medicaid asset protections just to have folks end up on Medicaid day-one of a care need. The hope was to delay Medicaid for a least a couple/few years which might prevent a Medicaid benefit payment entirely. And this is indeed what experience has shown has happened!
5% compound benefit increases back in the late 1980s and really through all of the 1990s and early 2000s was the primary inflation option anyway. Lower inflation percentage options (e.g. 3% or CPI-linked increases) didn't really begin to come to market until after 2004 or so.
California and Connecticut opted to use the concept of "dollar-for-dollar" asset protection: Whatever the P-ship policy actually paid out in benefits - including the inflation increases - is the amount of countable assets that would be disregarded for initial eligibility AND would be the amount of assets fully protected from Medicaid estate recovery. (This is the only model available for the "new Partnership," or "DRA Partnership" states that have enabled P-ship after DRA 2005.)
Indiana and New York created an "unlimited asset protection" model. In NY you had to buy a state-mandated minimum daily benefit amount with at least a 3-year benefit period (and the 5% compound inflation), but if you exhausted your LTCI benefits and then applied for Medicaid the state would fully protect an UNLIMITED amount of assets! Indiana had a "hybrid" approach: If you bought the state-mandated minimum (or more), like in NY, then you got unlimited Medicaid asset protection, OR if you bought less, you'd have dollar-for-dollar. Note that both Indiana's and NY's unlimited asset protection provision was grandfathered by the Deficit Reduction Act (DRA) of 2005.
All four original states also created their own, separate Partnership LTCI CE courses (4 to 8 hours) that had to be taken to sell a P-ship contract.
In the 1990s Partnership LTCI was HUGELY popular in these 4 states, with sales of P-ship easily generating more than 50% of all LTCI policies sold ... CT and IN may have been as high as 80% - I can probably find that data, but it's not really relevant today. Just note that the P-ship concept, the option was very attractive to consumers buying LTCI in those states. (Remember, it was all "traditional" LTCI back then.)
Then we hit 1993. OBRA 1993 expanded Medicaid estate recovery to allow states to go after any assets in a Medicaid beneficiaries "taxable estate" vs. just the "probate estate." It's easy to avoid probate, and that's what ELAs helped folks do pre-1993. As part of OBRA '93, Henry Waxman, D-CA, added an amendment that said any new Partnership programs could protect countable assets from eligibility, but NOT from estate recovery. Of course, the Waxman amendment grandfathered the existing P-ship states, including his own CA plan! Waxman's mistaken concern - with little to know actual evidence at the time - was that WEALTHY PEOPLE! would be the ones buying P-ship policies and then going on Medicaid thus using up limited government resources that should be reserved for those truly in need. Of course, no new P-ship plans were enacted after OBRA '93. (MA I think fell into a timing gray area around this time which is why it has the "limited" home equity only protection provisions you've seen and we talked about.)
To Rep. Waxman's credit when the DRA was being debated in 2005, he publicly stood up on the house floor and said he was wrong to have insisted on the amendment to OBRA '93, and he personally sponsored an amendment to DRA removing the 1993 "Waxman amendment" limitation!
From 1988 to 2006 something like 188,000 P-ship LTCI policies were sold (I think that's from CA, CT & IN), and only 88 people both exhausted their coverage and ended up on Medicaid. Partnership LTCI did exactly what the original creators though it would!
(I'll find and forward separately a couple reports on Partnership that show this, and also more recently suggesting that maybe it's not saving states as much as they thought since it really didn't grow the market/increase product penetration beyond folks who would have bought LTCI anyway. So what?! We know that without any LTCI when a family's in crisis they are going to hire an ELA to protect whatever they can as quickly as they can, so I think these "negative" studies have their own biases that don't fully reflect the issues. Also the lack of sales, market growth, is NOT a consumer-demand or product or even a pricing problem it's an advising and sales problem ... but that's another story ...)
After DRA passed, states LEAPED at the opportunity to enact the new enabling Partnership legislation post-DRA. Many states got legislation on the books as quickly as by the end of 2006 with asset protection retroactive to the DRA effective date in February 2006. As my website shows, we now have 44 fully-active Partnership states!
For the most part the federal DRA Partnership guidelines created a more-consistent, single set of rules for all the new states and carriers to follow, versus the state-by-state, separate Partnership commissions, products, etc. The carriers pushed HARD for this uniformity of approach, especially to prevent the requirement of having to create, design, price, file a separate Partnership contract in every state.
"New Partnership" or "DRA Partnership" requirements are these:
1. The insurance carrier must be Partnership certified by the state. Basically the carrier must agree to share sales and policy information data with the state.
2. Agents must be Partnership certified through specific Partnership CE training. DRA mandated an initial 4-hour CE requirement with a 2-hour renewal every two years.
- The passage of DRA coincided with a push at the NAIC (National Association of Insurance Commissioners) to mandate it's own "LTCI sales CE" requirement - you know, because ... ??? NO other mainstream financial insurance product requires a wholly separate CE course to see it beyond a state license with its own renewal CE requirements (e.g. life insurance, disability insurance, etc.) The NAIC wanted an 8-hour/4-hour LTCI training mandate just to sell it ... SO, the NAIC took the DRA Partnership training (4/2) and made it part of a new, mandated 8/4 training requirement for LTCI.
- This 8-hour/4-hour extra CE training requirement created a barrier to new sales for many agents who refused to take the training, which meant they weren't selling LTCI at all, let alone P-ship! It's still an issue today ... but, again, that's another story ...
3. Policies must be issued with an issue-age-appropriate level of automatic benefit inflation increases. But, here's a key to why the New P-ship states were able to so easily and quickly launch: It's the exact same product/policy already approved for sale - no extra cost or option or whatever for "Partnership" - just that to be P-ship policy if the contract is issued with at least the minimum-required auto-inflation benefit it would automatically be considered Partnership-qualified!
- Issue age 60 or under had to have at least 3% compound automatic benefit inflation increases. ("Purchase options" generally don't qualify).
- Issue age 61-75 could have any type of automatic inflation, including simple/equal increases. DRA said it also had to be at least 3%.
- Issue age 76+ didn't have to have an inflation increases.
4. NO mandate of a minimum daily benefit nor minimum benefit period. Congress, the NAIC and states realized that their "cost"/risk was only equal to what a consumer was willing to buy. So $50/day for 2-years with 3% compound inflation after 24 years a claim would pay out in total $73,000 and that was the extent of countable asset protection and estate recovery protection. And even IF the policyholder had to go on Medicaid day-one, the state could offset its monthly costs by the amount of the benefit too.
5. Any/every qualified company/policy issued with the appropriate age-based inflation option/% is automatically given the Partnership endorsement - whether a client wants it or not.
6. Partnership doesn't guaranteed Medicaid qualification - you still have to meet all the other criteria.
Partnership doesn't require that you use Medicaid - it doesn't force anyone onto Medicaid if the P-ship policy's benefit run out either.
NO "hybrid" or "linked-benefit" LTC insurance can be Partnership-qualified; it must be a "traditional" LTCI policy design. That's a federal DRA issue that there is no way around. And it's a significant issue in today's market that's seeing such an exploding of these combo contracts with a dismissal of "traditional" and an almost malpractice-level degree of ignorance of the Partnership benefits!
About 19 states have lowered the P-ship qualifying automatic inflation percentage to just 1%, even under age 60!!! Some other states have kept the 60 and under at 3%, but 61-75 can buy as little as 1% to get P-ship qualification. The idea is, who cares if it keeps up with inflation or not, one way or another, the policy's benefits offsets the state's Medicaid cost/risk!
1/7/2021
