Federal Legislation Allows States to Develop Long-Term Care Partnership Programs
President Bush signed the Deficit Reduction Act of 2005 into law on February 8, 2006. Among other issues, this legislation offers all states more latitude in the way they operate Medicaid programs. One of the most significant changes, as outlined in Section 6021 of the law, allows states to develop Long-Term Care Partnership programs. These programs permit individuals who have exhausted their private long-term care insurance to access Medicaid without the same means-testing requirements as other applicants. Any state that wants to develop such a partnership program must meet the extensive federal requirements outlined in the provisions. Private long-term care insurance policies are also subject to stringent requirements in order for the insured to be eligible for the program.
The first long-term care insurance partnership programs were developed in the 1980s to encourage people to buy private long-term care insurance instead of relying solely on Medicaid. The original programs were only permitted in California, Connecticut, Indiana, and New York and were designed to allow anyone who had bought a qualifying long-term care policy and used up their benefits, to retain a designated amount of assets and still qualify for Medicaid as long as they met all other eligibility criteria.
Under the Deficit Reduction Act, private long-term care policies must meet even more criteria than before, including federal tax-qualification, and having certain consumer protection and inflation provisions. Inflation protection is a major qualifying criterion under the current law. Purchasers of long-term care policies that are under the age of 61 must have a policy with compound annual inflation protection.
When an individual purchases a long-term care policy, they are usually offered a choice of inflation protection riders. One is the simple inflation rider. In this instance, the policy’s original benefit amount is increased by a defined percentage (usually 3-5%) on an annual basis. Another option is the compound inflation rider. In this case, the benefit amount is increased annual by a defined percentage of the current benefit amount, not the original benefit amount. Compound inflation protection provides a rapid increase in the benefit amount, providing a larger pool for the insured to draw from. Although a 5 percent increase is what most insurance companies typically offer for compound inflation protection, the Deficit Reduction Act lets the individual states decide on the applicable percentage rate.
Long-term care insurance purchasers between the ages of 61 and 75 must also have some level of inflation protection. However, the law has not defined what that level should be. The Deficit Reduction Act also mandates the U.S. Department of Health and Human Services to develop a reciprocity agreement that enables purchasers of private long-term care insurance to use their benefits in other partnership states.
Be sure to speak with an advisor to discuss your long-term care needs and whether your state offers a Long-Term Care Partnership program.