CHAPTER VII – INTRODUCTION TO THE

PARTNERSHIP LTCI PROGRAM

Note:  Many of the features of the Partnership Program for Long Term Care Insurance have been mentioned by category previously but are repeated here as they are all important parts of the in-depth discussion on this program. 

INTRODUCTION OF THE PARTNERSHIP FOR LONG-TERM CARE

In the late 1980s the Robert Wood Johnson Foundation supported the development of a new LTC insurance model, with a goal of encouraging more people to purchase LTC coverage.  Their purposes was to establish "The program, called the Partnership for Long-Term Care, brought states and private insurers together to create a new insurance product aimed at moderate-income individuals or those at most risk of future reliance on Medicaid to cover long-term-care needs."

The Partnership program was initially designed to attract consumers who might not otherwise purchase LTC insurance.  The heart of the program is that states will offer the guarantee that if benefits under a Partnership policy do not sufficiently cover the cost of long-term care, the consumer may qualify for Medicaid under special eligibility rules while retaining a pre-specified amount of assets (though income and functional eligibility rules still apply).  This program should allow consumers who purchase LTC insurance from having to become impoverished to qualify for Medicaid—and at the same time, the state , and states avoid the entire burden of long-term-care costs.  Four states—California, Connecticut, Indiana and New York—implemented Partnership programs in the early 1990s.  However, Congress was concerned that the funds that would be used for Medicaid purposes and which are becoming more insufficient in each passing day, would be used for this purpose (i.e., to encourage consumers to purchase private LTC insurance), therefore they stopped all further development of this program (Omnibus Budget Reconciliation Act (OBRA) of 1993). The four states with existing Partnership programs were allowed to continue, but the OBRA provisions ended the replication of the Partnership model in new states.

The four demonstration states used two models of asset protection.  California, Indiana and Connecticut chose a dollar-for-dollar model wherein the amount of insurance coverage purchased equals the amount of assets protected from consideration if and when the consumer needs to apply for Medicaid.  For example, a consumer who bought a policy with a benefit of $100,000 would be entitled to up to $100,000 worth of nursing home or community-based long-term care.  However, if further care became necessary, the individual would be able to apply for Medicaid coverage, while still retaining $100,000 worth of assets.

In the total asset protection model, used in New York state, consumers were required to buy a more comprehensive benefit package as defined by the state, originally it was required that Partnership policies cover three years of nursing home or six years of home-health care.) Consumers purchasing such a policy could protect all of their assets when applying for Medicaid.

In 1998 Indiana switched to a hybrid model, whereby consumers could choose between dollar-for-dollar or total asset protection. New York also recently added a dollar-for-dollar option for consumers.

As of 2005 more than 172,000 consumers in the four demonstration states had active Partnership policies.  Since this is a relatively new program and therefore, very few Partnership policyholders have actually have needed long-term care.  However, of those that have accessed their benefits, the Government Accountability Office reports that, “More policyholders have died while receiving long-term-care insurance (899 policyholders) than have exhausted their long-term-care insurance benefits (251 policyholders), which could suggest that the Partnership for Long-Term Care program may be succeeding in eliminating some participants’ need to access Medicaid.”

The Deficit Reduction Act of 2005

The Deficit Reduction Act of 2005 included a number of reforms related to long-term-care services and of particular interest was the lifting of the moratorium on Partnership programs.  Under the DRA all states can implement LTC Partnership programs through an approved State Plan Amendment, if specific requirements are met.  The DRA requires programs to include certain consumer protections, most notably provisions of the National Association of Insurance Commissioners’ Model LTC regulations (which will be discussed in detail).  The DRA also requires that polices include inflation protection when purchased by a person under age 76 (also discussed later).

 

PREVIOUS CONSIDERATION THAT MAY STILL BE APPLICABLE

Some of the concerns that prompted Congress to halt further implementation of the Partnership in 1993 are still relevant, such as whether Partnership programs save states money?  What consumer protections are needed to ensure that policies will provide meaningful benefits when they are needed 20 years in the future?  The following is a brief overview of some of the major issues states should consider when developing LTC Partnership programs.

COORDINATION WITH STATE REGULATORS, PRIVATE INDUSTRY & CONSUMERS

The successful implementation of Partnership programs requires the input and effort of a variety of stakeholders—state policy-makers, private industry and consumers.

Several states have been interested in the outcome of the Partnership program for several years, but could not take any action because of federal Medicaid regulations and OBRA.  Now that the door has been opened, the response has been rather rapid and several states have expressed immediate interest in this plan and many have already started with tough requirements for special agent training prior to marketing this LTCI plan.  There have been some modifications of existing regulations and statutes which have been rather rapidly accomplished. 

Several insurers that have marketed the Partnership Program plans in the four states that have offered it have generally expressed interest in having similar plans approved from the other state's Department of Insurance.  While expectations as to the number of these policies sold in the 4 states, indications are that interest is increasing, particularly with recent changes in Medicaid requirements.  Where the state Insurance Department listens to its Consumers, premium protection and non-forfeiture clauses, among several other important provisions, have been as quickly implemented, if not already.

The insurance industry plays a key role in underwriting Partnership policies.  Insurance companies and the independent agents with whom they work may have extensive experience in the long-term-care insurance market and may be able to provide states with programmatic and fiscal projections, as well as advice on effective marketing strategies for LTC insurance products.

Target Population and State Budget Impact

Reports by the Robert Woods Johnson Foundation has always stressed from the beginning, the success of Partnership programs in reducing state long-term-care expenditures depend on the program’s ability to encourage people with moderate incomes, who would otherwise rely on Medicaid for potential LTC needs, to purchase private insurance.  However, if the program serves primarily to provide “substitute” insurance for wealthier individuals, who could otherwise afford to pay out-of-pocket or purchase other private LTC insurance, then state savings will not be realized.  Still, that should not indicate that the entire program is flawed, but adjustments may have to be made.

As states consider the best way to attract those individuals who would not otherwise purchase LTC insurance, the experience of the demonstration states can be illustrative. The two models, dollar-for-dollar and total asset protection, seemed to attract consumers with different levels of assets.  To qualify for total asset protection, New York mandated a relatively comprehensive benefit package.  This increased the premiums and attracted consumers who were financially better off.  A Congressional Research Service report notes that some Partnership state directors in the original states felt that the dollar-for-dollar model promotes policies that are more affordable, and are thus better able to attract persons with less wealth.

The DRA specifies that all new LTC Partnership programs use the dollar-for-dollar methodology.  In order to keep to keep premiums affordable, policies must have benefit options that states should create benefit options that appeal to people with varying levels of assets: less coverage (and associated asset protection) for those with limited means/assets and more generous coverage for those with more to protect.  This, then, creates an obligation to each agent to make sure that the consumers are well informed about what they are purchasing, the level of benefits to be provided, and what is protected.

CONSUMER AND AGENT EDUCATION

With the complexity of the long-term-care insurance choices and the added intricacy of Partnership programs, it has become obvious to regulators that a strong and detailed consumer education and insurance agent training must be part of any new state Partnership programs.

The DRA addresses some issues related to consumer and agent education:

The secretary of Health and Human Services (HHS) is required to establish a National Clearinghouse for Long-Term-Care Information that will educate consumers about the need for and costs associated with long-term-care services and will provide objective information to help consumers plan for the future. HHS launched a Web site, www.longtermcare.gov to aid in consumer education.

Partnership programs must include specific consumer protection requirements of the 2000 National Association of Insurance Commissioners (NAIC) LTC Insurance Model Act and Regulation.  If the NAIC changes the specified requirements, the HHS secretary has 12 months to determine whether state Partnership programs must incorporate the changes as well.

State insurance departments are responsible for ensuring that individuals who sell Partnership policies (insurance agents) are adequately trained and can demonstrate understanding of how such policies relate to other public and private options for long-term-care coverage.

Consumer and insurance agent education are closely aligned. Insurance agents play a vital role in ensuring that consumers understand their options as well as the terms and conditions of any given policy.  Of primary importance is guaranteeing that consumers understand the criteria that will allow them to become eligible for both private LTC coverage and, if necessary, Medicaid.  Consumer advocates point out that exhausting Partnership policy benefits is no guarantee that an individual will qualify for Medicaid as the state’s income and functional eligibility criteria must still be met.  

The DRA specifies that “any individual who sells a long-term-care insurance policy under the Partnership (program) receives training and demonstrates evidence of understanding of such policies and how they relate to other public and private coverage of long-term care.”  The four existing  Partnership program states require LTC insurance agents to undergo a number of hours of initial training specifically devoted to the Partnership program, in addition to other general training and continuing education requirements.

INFLATION PROTECTION

(Note the previous discussion on Inflation Protection in LTCI policies.)

Inflation protection is a provision written into a LTC insurance policy that stipulates that benefits will increase by some designated amount over time.  Inflation protection ensures that long-term-care insurance products retain meaningful benefits into the future.  Because policies may be purchased well before they are needed, and long-term-care costs are likely to continue to increase, inflation protection can be a key selling point for consumers interested in purchasing private LTC coverage. 

The DRA requires that Partnership policies sold to those under age 61 provide compound annual inflation protection.  Details of this benefit will be discussed later. Note:  While the inflation protection is rather pricey, a person age 76 or older may opt to increase the daily benefit for the same amount of premium that he would have to pay for inflation protection on lesser daily benefit.  When the daily benefit is higher, that also means that there would be more assets under protection if Medicaid should ever be necessary.

Two main types of inflation protection used in long-term-care insurance are future-purchase option (FPO) and automatic benefit increase (ABI).  With FPO protection, the consumer agrees to a premium for a set amount of coverage.  Every several years, the insurance issuer offers to increase that coverage for an increase in the premium amount paid by the consumer. If the consumer chooses (or cannot afford) to purchase the increased coverage, benefits remain level, even as the costs of long-term-care services increase.  The value of $100 per day of coverage may erode significantly over time.

With ABI, the amount of coverage automatically increases by a set amount annually. The cost of those benefit increases are automatically built into the premium when the policy is first purchased, so the premium amount remains fixed.  Policies that have ABI protection are generally more expensive up front, but are more effective at ensuring that policy benefits will be adequate to cover costs down the road.

RECIPROCITY BETWEEN STATES

In 2001 Indiana and Connecticut implemented a reciprocity agreement allowing Partnership beneficiaries who have purchased a policy in one state—but move to the other—to receive asset protection if they qualify for Medicaid in their new locale.  Although prior to this agreement the insurance benefits of Partnership policies were portable, the asset protection component was state-specific.  The asset protection specified in the agreement is limited to dollar-for-dollar, so Indiana residents who purchase total asset protection policies would only receive protection for the amount of LTC services their policy covered if they moved to Connecticut.

Reciprocity is an attractive feature for many consumers, especially those who do not currently know where they will reside in future years.  The DRA requires the HHS secretary (in consultation with National Association of Insurance Commissioners, policy issuers, states, and consumers) to develop standards of reciprocal recognition under which benefits paid would be treated the same by all such states.  At this time, the Partnership Program is in its infancy in several states where reciprocity is not totally accomplished.

Many states are interested in the opportunities related to expansion of the Partnership model.  Before the passage of the DRA, 21 states had anticipated a change in the law and proposed or enacted authorizing legislation.

  A recent survey of state Medicaid directors found that 20 (of 40 total) respondents indicated that they planned to propose a Long-Term Care Partnership program within the year.  This bodes well for reciprocity in the near future.

RESULTS OF THE PRESENT PARTNERSHIP PROGRAM

The Foundation reported that this plan, authorized in 1987, by 2000, a total of 104,000 applications had been taken and more than 95,000 had been sold in the four program states — California, Connecticut, Indiana and New York.

• More than 25,000 new applications were received for Partnership policies in 1999.
• Program redesigns in Connecticut, Indiana and California have produced increases in applications received ranging from 324 percent to 540 percent, compared to similar time periods prior to those adjustments.

• More than 30 percent of those who purchased policies said they would not have purchased long-term care insurance without the partnership program.

Essential Features of the Policies

• Suitability for a broad income and age group among the elderly.
• Protection of beneficiaries' assets and income against catastrophic chronic care costs (with different levels of asset protection in each state).
• Coverage of a broad range of services, including home and community-based services and nursing home services.
• Case management and pre-admission screening.

THE PROBLEM

Long term care became an insurable event in the early 1980s — about the same time that policymakers began seeking new ways to pay for such care.  By the mid-1980s, major insurance companies were marketing private long-term-care policies as a way to guard against the catastrophic costs associated with long-term care.

Long Term Care Insurance was found to be a way to stem increasing middle-class dependence on Medicaid as families' assets became exhausted paying for long-term care and the individual in need of care became poor enough to be eligible for Medicaid.

FINANCING LONG-TERM CARE

The situation today is that financing of long-term care is based on statistics which show that without a doubt, the number of the chronically ill elderly will inevitably increase with the population growth of those older than age 80 and with medical advances that enable those with chronic diseases to survive longer.

According to a study published in the New England Journal of Medicine, 43 percent of all Americans will enter a nursing home at some time before they die.  Of these, 55 percent will stay at least a year and 21 percent will stay at least 5 years, with the average stay lasting 2.5 years.  Currently, the average cost of a year in a nursing home, nationwide (based on the daily average), is about $70,000.  By 2010 the cost is expected to rise to more than $83,000 per year.

In 1997, 68 percent of nursing home residents were dependent on Medicaid to finance at least some of their care.  From 1993 to 2018, Medicaid long-term-care expenditures for the elderly are projected to more than double in inflation-adjusted dollars because of the aging of the population and because of nursing home price increases in excess of general inflation.

Medicaid is already one of the largest items in state budgets, accounting for an average of 13 percent of outlays in 1993—Medicaid's proportion of state budgets exceeded 20 percent in 2000.  Although the elderly and disabled represent less than one-third of the total Medicaid caseload, more than two-thirds of total program funding goes for support of their nursing home care.

DETERMINING THE NEED FOR LONG TERM CARE COVERAGE

A number of commissions at the federal and state levels have defined the need for insurance for the growing number of elderly Americans who have or will develop chronic illnesses. The Medicaid and long term care problems are not going away without some determinative actions by the public, the regulators and insurers.  Those who study these problems from the various disciplines have agreed broadly on several points.

They have reached broad agreement that:

• Delaying the moment at which patients qualify for Medicaid — which occurs when patients exhaust, or spend down, their assets to the maximum level allowed for Medicaid eligibility — could avoid financial disaster among long-term-care patients and their families.
• Preventing such spending down could also save public funds.

While private long-term-care insurance represents a $160-million industry, the coverage offered is limited and the costs remain high.  Thus, only a narrow spectrum of the elderly population is attracted to and can afford current long-term-care insurance policies.

Of the total cost of long-term-care services, far less than 1 percent is covered by private insurance. As a result, the public sector still bears the largest financial stake in this problem.

The problem is compounded by three other things:

• Elderly consumers either are not aware of or deny the need for long-term-care coverage.
• Elderly individuals often believe, mistakenly, that Medicare pays for long-term-care costs.
• The public sector, particularly the federal government, is reluctant to address any major new initiatives that could increase its budget.

The idea of financing long-term care through public-private partnerships between state governments and insurance companies grew out of meetings and discussions among health care policy experts in the mid-1980s.

The Robert Wood Johnson Foundation (RWJF) was attracted by its win-win-win potential: its potential to benefit consumers, Medicaid, and private insurers. RWJF authorized the national program in 1987.

THE DESIRED PROGRAM DESIGN

The Foundation staff set out the following goals in establishing the program:

• Avoidance of impoverishment among elderly families by guaranteeing asset protection.
• Ensuring access to quality long-term care.
• Coverage of a full range of home and community-based services.
• Development of a case management infrastructure in which the gatekeeper bears some financial risk in order to prevent excessive or inappropriate utilization.
• Assurance of equity and affordability in the long-term-care-insurance program for lower-income individuals.

THE ROLE OF THE FEDERAL GOVERNMENT

Medicaid is a joint federal-state program that is financed, on average, 57 percent by the federal government and 43 percent by the states.  It is administered by the individual states according to their Medicaid state plans, which are set up within broad federal guidelines and which dictate when an individual becomes financially eligible to received Medicaid benefits.

When a state makes changes or innovations in its Medicaid program that involve features that go beyond the current parameters — which was the case with the "Long-term-care Insurance for the Elderly" initiatives in the eight participating states — the federal government requires the state to seek permission to have those federal parameters (or requirements) changed.

One approach is to use waivers of federal requirements, either by a congressional mandate that becomes law, or the Health Care Financing Administration (HCFA) of the US Dept. of Health and Human Services that administers Medicaid, can grant waivers.

While initial partnership models required waivers, later models did not.  Models were amended to minimize the need for federal waivers.

In early 1988, some of the states participating in the program began to investigate how to obtain federal approval for their initiatives. Due to the time limit on the duration of administrative waivers and the length of time administrative approvals often take, attention soon focused on federal legislative waivers.  There was legislative activities on the waiver through the introduction of bills specifically addressing the partnerships, and some other efforts, but these efforts by the states were never put to a vote by Congress as they were opposed by the Democratic Congressman Waxman of California , Chairman of the House Subcommittee on Health and the Environment, and John Dingell of Michigan, Chairman of the House Energy and Environment Committees. These committees dealt with Medicaid and were concerned that the partnership program was too lenient in its standards, private insurers needed improvement in their consumer relationship, Medicaid money should go only to help the poor and near poor, and questions were raised in respect to the public and private sector links in such a program. 

States then used a Medicaid state plan amendment to receive the necessary approvals.  This entailed delay because insurance regulations governing partnerships in several of the states had to be modified to reflect the Medicaid state plan amendments and state legislatures usually had to approve the regulation changes, and HCFA, in turn, had to approve the state plan amendments.

In the end, the four states that implemented their partnerships received HCFA approval of their Medicaid state plan amendments—California, Connecticut, Indiana and New York.

Because of the delays caused by the Medicaid state plan amendment process and HCFA's separate process to approve the amendments, the Foundation  awarded implementation grants to the states one at a time, from August 1987 to December 1988.

The states that did not move beyond the planning phase cited political opposition, fiscal constraints, and regulatory barriers as the chief obstacles to implementation.

THE PARTNERSHIP PROGRAM IN THE FOUR STATES

The partnerships in California, Connecticut, and Indiana were based on a dollar-for-dollar model (Indiana changed its model in 1998).  Under the dollar-for-dollar model, for every dollar of long-term-care coverage that the consumer purchases from a private insurer participating in the partnership, a dollar of assets is protected from the spend-down requirements for Medicaid eligibility.  The New York plan is discussed below.

The purchaser buys a policy that stipulates the amount of coverage that the purchaser wants to purchase. That figure is also the amount that the insurer will pay out in benefits under long-term-care coverage when the policyholder is admitted to a nursing home or is receiving long-term care at home or through community-based services.

At the point at which that amount is fully paid out by the insurer, Medicaid can assume coverage, following application for Medicaid eligibility. However, the policyholder must contribute any income to pay for the coverage.

With non-partnership policies, Medicaid coverage would begin only when the insured had spent down non-housing assets to approximately $2,000.  However, with partnership policies, special Medicaid eligibility regulations allow the policyholder to keep assets up to the level of insurance paid benefits.

For instance, assume that a purchaser wants to protect $100,000 in assets that does not include the house. The purchaser would buy from a partnership insurer a policy that would provide $100,000 of benefits to cover that amount.

When the policyholder becomes eligible for benefits either by being admitted to a nursing home or by receiving long-term care at home or through community-based services, the insurer will cover those expenses up to $100,000 — or up to the total of the policyholder's remaining assets(except house and car and other small items) if those assets are less than the $100,000.

After the maximum benefits ($100,000 under this example) under the Long Term Care Insurance policies are paid out by the insurer, the policyholder must spend down remaining assets to $100,000, at which point Medicaid coverage can begin, pending application to Medicaid and a determination of eligibility.

The amount of assets and income that the applicant for Medicaid is allowed is discussed later, but basically, the policyholder is allowed to keep the $100,000 in nonhousing assets — in addition to the approximately $2,000 everyone is allow to keep — though any income received — such as Social Security, pension, or income from nonhousing assets — must be contributed to the policyholder's care.

THE NEW YORK PARTNERSHIP PLAN

The New York partnership was based on a different model: the total-assets protection model. According to this model, certified policies must cover three years in a nursing home or six years of home health care.

Once the benefits are exhausted, the Medicaid eligibility process will not consider assets at all.  Protection would be granted for all assets, though an individual's income must be devoted to the cost of care.

CONSENSUS OF THE RESULTS OF THE PROGRAM

Findings Concerning Partnership and State-Level Issues

• Implementation, though slower than envisioned, was successfully completed in four states and has resulted in real collaboration between the states and the insurers.
• State regulations that were developed for partnership products represented a more restrictive regulatory model than previously existed in the states for long-term-care-insurance policies.  The regulations specify that policies are standardized and of high quality; however, the tighter regulations also restrict the options of insurers that want to innovate changes that might make their policies more competitive.

Findings Concerning Insurers

• Policies were of high quality, covering a broad range of services, including case management (e.g., Connecticut, later adopted by New York and Indiana), home care, nursing home care, and alternative housing.
• Almost all of the insurers that are participating in the partnerships are big players and seem committed to continued participation in the partnerships.  There have been some negative comments on such matters as to the small number of policies sold and what they perceived to be the partnerships' potential to stifle choice and innovation.
• An atmosphere has been created in the partnerships that make the joint sharing of data possible.  Of substantial importance is the cooperation of the insurers in providing data on policyholders, policy features, assessments of eligibility for coverage, and use and cost of services.  This willingness to supply data stands in sharp contrast to the strong proprietary concerns of prior decades.

Findings Concerning Purchasers

• Purchasers of partnership policies were more highly educated, healthier, and more affluent than both non-purchasers who were surveyed and the population at large. More than 30 percent said they would not have purchased long-term-care insurance without the partnership.
• Variables related to knowledge and attitudes are significantly important in policy purchase. Thus, education and marketing to involve consumers are important components in a strategy for increasing the purchase of products.
• The analysis suggests that the partnerships have not expanded access to insurance for individuals who are more ill.
• Analyses of purchasers in California indicated that the partnerships seem to be meeting their goal of increasing the sale of long-term-care insurance to those in middle-income groups.

PRESENT MEDICAID SAVINGS IN THE FOUR ORIGINAL STATES

The four initial states continue to offer the specially tailored long-term insurance policies.

The partnership programs have saved the four states $8 million to $10 million in health care bills, plus it allows them to be more assertive in prodding people to get long-term-care insurance because the policies are more affordable.  Center for Health Policy, Research and Ethics at George Mason University.

New Federal Legislation Expands the Model

In the spring of 2006, President George W. Bush signed the Deficit Reduction Act of 2005 (DRA 2005) that allows the long-term-care insurance partnership model to be used in all 50 states. Besides increasing the incentives to purchase long-term-care insurance, the bill made it harder for seniors to give away money and property before asking Medicaid to pick up their nursing home tabs. Policies in these new programs must meet specific criteria, including federal tax qualification, identified consumer protections and inflation protection provisions. (See below)

All concerned hope that the nationwide clearance for the programs will help spur interest in consumers to buy coverage and in insurers to offer it.

Besides the four states with partnership programs in place, as of April 2006, according to a report by the AARP Public Policy Institute (Enid Kassner), another 21 have enacted authorizing legislation are: Arkansas, Colorado, Florida, Georgia, Hawaii, Idaho, Illinois, Iowa, Maryland, Massachusetts, Michigan, Missouri, Montana, Nebraska, North Dakota, Ohio, Oklahoma, Pennsylvania, Rhode Island, Virginia and Washington.  Others are expected to pass authorizing legislation soon.

DEFICIT REDUCTION ACT OF 2005

The Deficit Reduction Act was essential to the LTCI Partnership Program in numerous states interested in the Partnership Program.  An attempt has been made to eliminate as much "legalese" as possible in discussing this plan:

Expansion of State Long-Term Care (LTC) Partnership Program

(Just in case it ever comes up), The Deficit Reduction Act (DFRA) of 2005 is Public Law 109-171.  This law expands State LTC Partnership programs, which encourage individuals to purchase LTC insurance.  Prior to enactment of the DRA, States were able to disregard benefits paid under an LTC policy when calculating income and resources for purposes of determining Medicaid eligibility.  However, only States that had State plan amendments approved as of May 14, 1993, could exempt the LTC insurance benefits from estate recovery.

The DFRA amends sections of the law that now permits other States to exempt LTC benefits from estate recovery, if the State has a State plan amendment (SPA) that provides for a qualified State LTC insurance partnership (Qualified Partnership).  The DRA then adds a section in order to define a "Qualified Partnership."  States that had State plan amendments as of May 14, 1993, do not have to meet the new definition, but in order to continue to use an estate recovery exemption, those States must maintain consumer protections at least as stringent as those they had in effect as of December 31, 2005.   In order to avoid confusion, both types of states are referred to as "Partnership States."

Definition of "Qualified State LTC Partnership" and Requirements

Definition

The new legal clause as a result of the Act, defines the term "Qualified State LTC Partnership" to mean an approved SPA (State Plan Amendment) that provides for the disregard of resources, when determining estate recovery obligations—in an amount equal to the LTC insurance benefits paid to, or on behalf of, an individual who has received medical assistance.  A policy that meets all of the requirements specified in a Qualified State LTC Partnership SPA is referred to as a "Partnership policy."

The insurance benefits upon which a disregard may be based include benefits paid as direct reimbursement of LTC expenses, as well as benefits paid on a per diem, or other periodic basis, for periods during which the individual received LTC services.  The Act does not require that benefits available under a Partnership policy be fully exhausted before the disregard of resources can be applied.  (This wording may seem a little confusing in the use of "disregard", but it simply means that such resources will not be considered in determining Medicaid eligibility.)  Eligibility may be determined by applying the disregard based on the amount of benefits paid to, or on behalf of, the individual as of the month of application, even if additional benefits remain available under the terms of the policy.  The amount that will be protected during estate recovery is the same amount that was disregarded in determining eligibility.

It should be noted that while an approved Partnership SPA may enable an individual to become eligible for Medicaid by disregarding assets or resources under the provisions of the DRA, the use of a qualified Partnership policy will not affect an individual's ineligibility for payment for nursing facility services, or other LTC services, when the individual's equity interest in home property exceeds the limits that are part of the DRA (presently $500,000).

Requirements

There are also new provisions that set forth other requirements that must be met in order for a State plan amendment to meet the definition of a Qualified Partnership.  These include the following:

1.  The LTC Insurance policy must meet several conditions (discussed later in detail).  These conditions include meeting the requirements of specific portions of the National Association of Insurance Commissioners' (NAIC) LTC Insurance Model Regulations and Model Act (also discussed later in detail).

This deals with the "inner workings" and which, in essence, provides that the Insurance Department must certify to the State Medicaid agency that the policy meets the specified requirements of the NAIC Model Regulations and Model Act, and, if necessary, certification from the same authority that the policy meets the Internal Revenue Code definition of a qualified LTC insurance policy, and that it includes the requisite inflation protections.  Once this is done and the State Medicaid agency accepts the certification of the Commissioner or other authority, then the state now has a Partnership LTCI Program.  If there are later changes in the policy once it is issued, the disregard of the resources will not be affected.

If an individual has an existing LTC insurance policy that does not qualify as a Partnership policy due to the issue date of the policy, and that policy is exchanged for another, the State Insurance Commissioner or other State authority must determine the issue date for the policy that is received in exchange.  

1. To be a qualified Partnership policy, the-issue date must not be earlier than the effective date of the Qualified Partnership SPA.

 

2. The State Medicaid agency must provide information and technical assistance to the State insurance department regarding the Partnership and the relationship of LTC insurance policies to Medicaid.  This information must be incorporated into the training of individuals who will sell LTC insurance policies in the State and is so included in this text.

3. The State insurance department must provide assurance to the State Medicaid agency that anyone who sells a policy under the Partnership receives training and demonstrates an understanding of Partnership policies and their relationship to public and private coverage of LTC.

4. The issuer of the policy must provide reports to the Secretary, in accordance with regulations to be developed by the Secretary, which include notice of when benefits are paid under the policy, the amount of those benefits, notice of termination of the policy, and any other information the Secretary determines is appropriate.

5. The State may not impose any requirement affecting the terms or benefits of a Partnership policy unless it imposes the same requirements on all LTC insurance policies.

"Grandfather" Clause

A State that had a LTC insurance Partnership SPA approved as of May 14, 1993, is considered to have satisfied the requirements in section II above if the Secretary determines that the SPA provides consumer protections no less stringent than those applied under its SPA as of December 31, 2005.  Under this provision California, Connecticut, Indiana, Iowa, and New York would continue to be considered Partnership States.

Effective Dates

A SPA that provides for a Qualified State LTC Insurance Partnership under the Act may be effective for policies issued on or after a date specified in the SPA, but not earlier than the first day of the first calendar quarter in which the SPA is submitted.

The DRA requires the Secretary to develop standards regarding the portability of Partnership policies by January 1, 2007.  These standards will address reciprocal treatment of policies among Partnership States.  The Secretary is also required to develop regulations regarding reporting requirements for issuers of Partnership policies and related data sets. It is not necessary for States to wait for these standards and rules to be promulgated before submitting a Partnership SPA.  A State may submit a Partnership SPA at any time after the effective date of the DRA.

Requirements for a Long-Term Care Insurance Policy under a Qualified Long-Term Care Insurance Partnership

In order for a State Plan Amendment to meet the definition of a "Qualified Partnership," allowing the State to disregard assets or resources equal to the amount paid on behalf of an individual, the long-term care insurance policy, including a group policy, must meet the following conditions:

> The policy must cover a person who was a resident of the Qualified Partnership State when coverage first became effective. If a policy is exchanged for another, the residency rule applies to the issuance of the original policy.

> The policy must meet the definition of a "qualified long-term care insurance policy" that is found in the appropriate of the Internal Revenue Code of 1986.

> The policy must not have been issued earlier than the effective date of the SPA.

> The policy must meet specific requirements of the National Association of Insurance Commissioners (NAIC) Long Term Care Insurance Model Regulations and Model Act (shown in detail later).

The policy must include inflation protection as follows:

•  For purchasers under 61 years old, compound annual inflation protection;

•  For purchasers 61 to 76 years old, some level of inflation protection; or

     For purchasers 76 years or older, inflation protection may be offered but is not required.

 

STUDY QUESTION

CHAPTER SEVEN

 

1.  The Partnership program was initially designed

      A.  to keep the federal government out of the long-term care insurance business.

      B.  to attract consumers who might not otherwise purchase LTC insurance.  

      C.  to create a new area where disability salespersons could expand their sales.

      D.  in order to jack up the nursing home industry.

 

2.  A LTCI plan wherein by purchasing a specified benefit amount as designated by the state Department of Insurance, the insured would have all of his assets protected if he applied for Medicaid.  This plan is called

      A.  dollar-for-dollar model.

      B.  asset minimization plan.

      C.  total asset protection model.

      D.  the maximum plan.

 

3.  The Deficit Reduction Act also requires that polices include

      A.  return of premium after 5 years.

      B.  8 Activities of Daily Living as gatekeepers.

      C.  inflation protection when purchased by a person under age 76

      D.  no more than 5 years benefit period.

 

4.  Reports by the Robert Woods Johnson Foundation has always stressed from the beginning, the success of Partnership programs in reducing state long-term-care expenditures depend on the program’s ability to encourage people

      A.  with moderate incomes, who would otherwise rely on Medicaid for potential LTC needs, to purchase private insurance.

      B.  of high income to purchase coverage so that more money will be available for taxation.

      C.  to take out insurance agent licenses so as to get more representatives on the street. 

      D.  to support the insurance industry.

 

5.  With the complexity of the long-term-care insurance choices and the added intricacy of Partnership programs, it has become obvious to regulators that any new partnership program

      A.  must have sufficient commissions so that agents will sell the plan.

      B.  that the Federal Government must be involved in the marketing of the plan.

      C.  must be supported by the entire life and health industry, both by large and small    insurers.

      D.  must encourage strong and detailed consumer education and insurance agent training.

 

 

6.   The Deficit Reduction Act (DRA) requires that Partnership policies provide compound annual inflation protection

      A.  sold to those over age 75.

      B.  sold to those under age 61.

      C.  where there is a spousal interest.

      D.  where the daily benefits are above the national average for nursing home care.

 

7.  Two main types of inflation protection used in long-term-care insurance are future-purchase option (FPO) and

      A.  level increase (LI).

      B.  adjusted to the Cost of Living Index(COLI)  each year.

      C.  automatic benefit increase (ABI).  

      D.  immediate benefit option (IBO).

 

8.  One of the significant results of the Partnership Program study revealed that

      A.  only those of high-middle income were even interested in the plan.

      B.  more than 30 percent of those who purchased policies said they would not have purchased long-term care insurance without the partnership program

      C.  agents were discouraged as commissions were significantly lower.

      D.  very few insurers selling LTCI policies were interested in the program.

 

9.  If the partnership policy expires at a point when the policyholder has more assets than were originally insured — either because the policyholder insured for less than was owned or because the policyholder had accumulated assets in the meantime — partnership regulations require

      A.  the policyholder can retain all of the assets in any event.

      B.  that the policyholder spend down those assets to the insured amount before   Medicaid assumes coverage

      C.  there is no further asset protection and the whole plan falls apart—which is the main reason that it is so important to sell the maximum benefit.

      D.  the agent loses his commission.

 

10.  One of the results of the study of the Partnership Program was that State regulations that were developed for partnership products represented a more restrictive regulatory model than previously existed in the states for long-term-care-insurance policies.  The regulations specify that policies are standardized and of high quality;

      A.  and insurance companies absolutely love the program as it is very profitable.

      B.  the SEC and NASD are up in arms as they want to make it a security product.

      C.  however, the tighter regulations also restrict the options of insurers that want to innovate changes that might make their policies more competitive.

      D.  but agents do not like the program – low commissions.

 

ANSWERS TO STUDY QUESTIONS

1B     2C     3C     4A     5D     6B     7C     8B     9B     10C