The History and Development of Medicaid Partnership LTC Insurance
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 - paying for help with ADLs and cognitive issues vs. a more restrictive skilled/medical approach.
The RWJF wanted to both promote the purchase of private coverage and reduce the growing burden on state Medicaid programs. That is the "partnership" in Partnership LTC insurance. RWJF provided grants for states to set up state 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 LTC 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 LTC 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 requirements that each state's Partnership commission wanted in its Partnership LTC coverage. It was extra work, extra filing, etc., for a carrier to have both their "regular" LTC contract and a Partnership LTC contract. This completely separate Partnership LTC 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 policies 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 Medicaid cost savings from the monthly LTC insurance benefit, but the original Partnership states didn't want to grant the Medicaid Partnership asset protections just to have folks end up on Medicaid on day-one of a care need. The hope was to delay Medicaid for a least a 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 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) did not 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 Partnership LTC 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 Partnership LTC insurance after the Deficit Reduction act (DRA) of 2005 allowed new states to set up Medicaid LTC Partnerships.)
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 would have dollar-for-dollar asset protection. 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 LTC CE courses (4 to 8 hours) that had to be taken for an agent to sell a Partnership LTC policy in those states.
In the 1990s Partnership LTC insurance was HUGELY popular in these 4 states, with sales of Partnership easily generating more than 50% of all LTC insurance policies sold ... CT and IN were as high as 80%. The Partnership concept was very attractive to consumers buying LTC insurance in those states. In a worst case-worst case scenario, if the LTC insurance benefits ran out but care needs continued, the Partnership LTC policy would provide an additional on-going value in protecting assets from the otherwise mandatory Medicaid asset spend-down.
Then we hit 1993. The Omnibus Budget Reconciliation Act (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 is easy to avoid probate, and that is what Elder Law Attorneys helped folks do pre-1993. As part of OBRA '93, Rep. Henry Waxman, D-CA, added an amendment that said any new LTC Partnership programs could protect countable assets from initial eligibility, but NOT from estate recovery. Of course, the Waxman amendment grandfathered the existing Partnership states, including his own CA plan! Waxman's mistaken concern - with little to no actual evidence at the time - was that WEALTHY PEOPLE! would be the ones buying LTC Partnership policies and then going on Medicaid, thus using up limited government resources that should be reserved for those truly in need. Rep. Waxman's amendment meant no new Partnership plans were enacted after OBRA '93. (MA fell into a timing gray area around this time which is why it has only "limited" home equity partnership protection provisions.)
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 Partnership LTC insurance policies were sold in the state of CT, and only 88 people both exhausted their Partnership LTC insurance coverage and ended up on Medicaid. Partnership LTC insurance did exactly what the original creators though it would!
After the DRA passed, states LEAPED at the opportunity to enact the new enabling Partnership LTC 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 this 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 of the original four states. The insurance 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 and LTC insurance CE training.
3. Policies must be issued with an issue-age-appropriate level of automatic benefit inflation increases. But, here is a key to why the new Partnership states were able to so easily and quickly launch: Partnership policies are now the exact same product/policy already approved for sale - no extra cost or option or whatever for "Partnership," for the insurance companies and consumers - just that to be a Partnership policy the contract must be issued with at least the minimum-required auto-inflation benefit. When the qualifying inflation rider is purchased automatically is considered LTC 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 would be the extent of the Medicaid Partnership asset 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 and percentage is automatically given the LTC Partnership endorsement - whether a client wants it or not.
6. Partnership LTC insurance does not guaranteed Medicaid qualification - you still have to meet all the other Medicaid-eligibility criteria.
7. Partnership LTC does not require that you use Medicaid - it doesn't force anyone onto Medicaid when the Partnership policy's benefits run out either.
NO "hybrid" or "linked-benefit" LTC insurance can be Partnership-qualified. To receive a Medicaid Partnership certificate the LTC insurance must be a "traditional" policy design. That is a federal DRA legislation issue that there is no way around. And it is a significant issue in today's market that is seeing such an expansion of these "combo" contracts with many advisors wholly dismissing all "traditional" LTC insurance options, along with an almost malpractice-level of ignorance of the LTC Partnership benefits!
Medicaid Partnership LTC insurance policies provide the greatest potential value of all types of LTC insurance today. The premiums are lowest cost for the maximum LTC insurance coverage, and if the policy's benefits run, there is still the ongoing value of Medicaid asset protection that continues even after the Partnership LTC policy's benefits end.
The RWJF wanted to both promote the purchase of private coverage and reduce the growing burden on state Medicaid programs. That is the "partnership" in Partnership LTC insurance. RWJF provided grants for states to set up state 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 LTC 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 LTC 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 requirements that each state's Partnership commission wanted in its Partnership LTC coverage. It was extra work, extra filing, etc., for a carrier to have both their "regular" LTC contract and a Partnership LTC contract. This completely separate Partnership LTC 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 policies 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 Medicaid cost savings from the monthly LTC insurance benefit, but the original Partnership states didn't want to grant the Medicaid Partnership asset protections just to have folks end up on Medicaid on day-one of a care need. The hope was to delay Medicaid for a least a 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 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) did not 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 Partnership LTC 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 Partnership LTC insurance after the Deficit Reduction act (DRA) of 2005 allowed new states to set up Medicaid LTC Partnerships.)
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 would have dollar-for-dollar asset protection. 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 LTC CE courses (4 to 8 hours) that had to be taken for an agent to sell a Partnership LTC policy in those states.
In the 1990s Partnership LTC insurance was HUGELY popular in these 4 states, with sales of Partnership easily generating more than 50% of all LTC insurance policies sold ... CT and IN were as high as 80%. The Partnership concept was very attractive to consumers buying LTC insurance in those states. In a worst case-worst case scenario, if the LTC insurance benefits ran out but care needs continued, the Partnership LTC policy would provide an additional on-going value in protecting assets from the otherwise mandatory Medicaid asset spend-down.
Then we hit 1993. The Omnibus Budget Reconciliation Act (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 is easy to avoid probate, and that is what Elder Law Attorneys helped folks do pre-1993. As part of OBRA '93, Rep. Henry Waxman, D-CA, added an amendment that said any new LTC Partnership programs could protect countable assets from initial eligibility, but NOT from estate recovery. Of course, the Waxman amendment grandfathered the existing Partnership states, including his own CA plan! Waxman's mistaken concern - with little to no actual evidence at the time - was that WEALTHY PEOPLE! would be the ones buying LTC Partnership policies and then going on Medicaid, thus using up limited government resources that should be reserved for those truly in need. Rep. Waxman's amendment meant no new Partnership plans were enacted after OBRA '93. (MA fell into a timing gray area around this time which is why it has only "limited" home equity partnership protection provisions.)
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 Partnership LTC insurance policies were sold in the state of CT, and only 88 people both exhausted their Partnership LTC insurance coverage and ended up on Medicaid. Partnership LTC insurance did exactly what the original creators though it would!
After the DRA passed, states LEAPED at the opportunity to enact the new enabling Partnership LTC 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 this 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 of the original four states. The insurance 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 and LTC insurance CE training.
- The 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 National Association of Insurance Commissioners (NAIC) to mandate its own "LTCI sales CE" requirement. The idea was to prevent unsuitable LTC insurance sales, even though there was little evidence that unscrupulous sales were an issue in the marketplace. NO other mainstream financial insurance product requires a wholly separate CE course to sell 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 to sell any LTC insurance ... SO, the NAIC took the DRA Partnership training (4-hours/2-hours) and made it part of a new, mandated 8-hour/4-hour training requirement for LTC insurance.
- 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 LTC insurance at all, let alone Partnership LTC! This is an ongoing issue today - the failure of many agents to get this basic CE training to sell this critically important coverage.
3. Policies must be issued with an issue-age-appropriate level of automatic benefit inflation increases. But, here is a key to why the new Partnership states were able to so easily and quickly launch: Partnership policies are now the exact same product/policy already approved for sale - no extra cost or option or whatever for "Partnership," for the insurance companies and consumers - just that to be a Partnership policy the contract must be issued with at least the minimum-required auto-inflation benefit. When the qualifying inflation rider is purchased automatically is considered LTC Partnership-qualified!
- Issue age 60 or under had to have at least 3% compound automatic benefit inflation increases. ("Purchase options" generally don't qualify). About 19 states have now lowered the minimum inflation amount to 1% for this age group.
- 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%, but most states have now lowered this to just 1%.
- 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 would be the extent of the Medicaid Partnership asset 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 and percentage is automatically given the LTC Partnership endorsement - whether a client wants it or not.
6. Partnership LTC insurance does not guaranteed Medicaid qualification - you still have to meet all the other Medicaid-eligibility criteria.
7. Partnership LTC does not require that you use Medicaid - it doesn't force anyone onto Medicaid when the Partnership policy's benefits run out either.
NO "hybrid" or "linked-benefit" LTC insurance can be Partnership-qualified. To receive a Medicaid Partnership certificate the LTC insurance must be a "traditional" policy design. That is a federal DRA legislation issue that there is no way around. And it is a significant issue in today's market that is seeing such an expansion of these "combo" contracts with many advisors wholly dismissing all "traditional" LTC insurance options, along with an almost malpractice-level of ignorance of the LTC Partnership benefits!
Medicaid Partnership LTC insurance policies provide the greatest potential value of all types of LTC insurance today. The premiums are lowest cost for the maximum LTC insurance coverage, and if the policy's benefits run, there is still the ongoing value of Medicaid asset protection that continues even after the Partnership LTC policy's benefits end.
UPDATED 10/25/2022
