How to Identify a Partnership-Qualified Long-Term Care Insurance Policy

In previous blog articles I have discussed the long-term care insurance partnership program that almost two thirds of the states have already put in place or are in the process of approving for their residents.

This program is designed to encourage the purchase of LTCI by consumers so that the state can reduce its liability for paying for long-term care costs in the future. This is vital if current state Medicaid programs are going to remain solvent. The advantage to consumers is that the state acts as a safety net for them in case their care exceeds the benefits of their LTCI policy, and they are guaranteed that long-term care costs will not be allowed to completely wipe out all of their assets.

What identifies a policy as being partnership-qualified? There are several qualifications that were outlined in the federal Deficit Reduction Act of 2005, including the need to be federally tax-qualified and to contain the consumer protection provisions of the NAIC LTC Model Act and Model Regulation. The vast majority of policies sold today already have those provisions.

However, there is one requirement that contributes more than almost any other to qualifying a LTCI policy for the partnership program. It must have the age-appropriate inflation protection benefit.

These requirements are as follows:

  • Those age 60 or younger must have “compound annual inflation protection.”
  • Those at least 61 but younger than 76 must have “some level of inflation protection.”
  • Those age 76 or older must be offered an inflation protection option, but they are not required to purchase that option.

Why is inflation protection given such prominence in partnership-qualified policies? The answer is that if partnership-qualified policies don't have inflation protection, the purpose of a partnership program may be defeated.

This is because the whole purpose of the partnership program is to help relieve the financial burden of long-term care costs from the state Medicaid systems. If a consumer buys a LTCI policy but does not allow it to keep pace with the rising costs of care, the insufficient benefits will be more likely to force the policyholder to turn to Medicaid anyway. With very few assets left, the state will have to pick up the rest of the bill for this individual and the original intent of the program is defeated.

A very important lesson that can be learned is that inflation protection is a vital component of any LTCI policy—whether partnership-qualified or not.

Until next time…Duane

Duane Lipham is a Certified Long-Term Care (CLTC) consultant.

Read more about long-term care insurance (LTCI).