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New Law Pushes Long-Term Care Insurance Coverage
By Daniel C. Vock, Stateline.org Staff Writer
Feb. 20, 2006 - Thanks to a new federal law, states
will be able to reward senior citizens who buy long-term care insurance
by letting them hang on to assets while Medicaid pays for their nursing
home care.
(Note: This story was published
originally at
Stateline.org on Feb. 16, 2006)
Four states – Connecticut, California, Indiana and
New York – have offered the specially tailored long-term insurance
policies for more than a decade, but, until last week, the federal
government prohibited other states from following their lead.
Unlike normal long-term care policies, coverage
under “partnership” programs allows seniors to hold on to some of their
money and property and still qualify for Medicaid help.
“The most important lesson (of the partnership
programs) is the notion of combining public and private resources. There
are probably other ways of blending private and public resources,” said
James Knickman, the vice-president for research and evaluation at the
Robert Wood Johnson Foundation, which first proposed the policies in
the late 1980s.
Since the early 1990s more than 225,000 of the
special policies have been purchased in the four states, and fewer than
150 of those customers have used Medicaid.
The move could help states rein in the runaway
costs of providing taxpayer-financed long-term care while giving
middle-class seniors a way to pass along some of their life’s savings to
their families.
Besides the four states with partnership programs
in place, another 16 have laws on the books that would let them roll out
similar initiatives now that Congress has cleared the way. And three
more have authorized studies of “long-term care partnerships,” according
to the
American Council of Life Insurers, which supported the new law.
President Bush signed the legislation last week. It
was part of a larger budget-cutting measure that, besides sweetening the
incentives to purchase long-term care insurance, made it harder for
seniors to give away money and property before asking Medicaid to pick
up their nursing home tabs.
Elderly people who might eventually apply for
Medicaid to pay for nursing home care could avoid the new, stiffer
penalties for giving away assets if they have purchased partnership
policies.
The private insurance policy would cover them
initially during a nursing home stay. But if the care lasted long enough
to exhaust the insurance, policyholders could qualify for Medicaid
without spending all of their money, as normally required by Medicaid
rules.
Someone with a $100,000 policy would be allowed to
keep $100,000 worth of assets and still qualify for government-paid
nursing home care. Without the specially tailored insurance, seniors
generally must have less than $2,000 in assets (not including a house
and a car) to qualify for Medicaid.
Congress settled on the “dollar-for-dollar” asset
protection used by Connecticut and California, instead of alternatives
used by New York and Indiana.
New York originally offered customers total asset
protection if they bought enough insurance to cover three years of
nursing home care or six years of home care. But policies that met those
requirements proved too expensive for many middle-class customers, so
New York recently started allowing dollar-for-dollar protection, too.
Indiana already used a hybrid between the two models.
Without the partnership policies, protecting assets
will become increasingly difficult for seniors.
The same budget-cutting measure that authorized
more partnerships also penalizes seniors who give away assets within
five years of applying for Medicaid. Those seniors would have to wait a
certain penalty period, depending on the size of the gifts, before
Medicaid starts to pay for their nursing home care.
Proponents of partnerships argue that those
policies prevent seniors from hiding assets and giving them away. Plus,
those proponents point out, few of the policyholders ever turn to
Medicaid.
The Connecticut Partnership for Long-Term Care started operations in
April 1992. Since then, nearly 40,000 people have bought policies in
Connecticut, and roughly 32,000 of those were still in force at the end
of September 2005.
In that time, 455 people qualified for insurance
benefits, and only 32 outlived their private coverage and turned to
Medicaid. Those 32 people shielded a total of $2.9 million in assets, or
roughly $91,600 a piece, the partnership
reported.
Mark Meiners, the director for the
Center for Health Policy, Research and Ethics at George Mason University
and an architect of the partnership program, said he hoped the
nationwide clearance for the programs will help spur interest in
consumers to buy coverage and in insurers to offer it.
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, he said.
States shoulder a large load of the nation’s bills
for nursing homes, because they split the cost of Medicaid with the
federal government. Medicaid is by far the largest provider of nursing
home services, paying 46 percent – or nearly $51 billion – of all
nursing home expenditures in 2003.
Knickman and Meiners said the target audience for
partnership programs is limited. They’re intended for middle-class
people who have money or property they want to protect – to pass down to
their children, for example, or to bequest to a church or charity – but
who probably couldn’t afford a lengthy stay in a nursing home, which
costs more than $70,000 a year for private customers.
Primarily, consumers would be between 55 and 65, no
longer paying for children’s college costs but not yet retired. Premiums
are cheaper the younger the customer, and buying early can make the
plans more affordable.
Knickman, from the Robert Wood Johnson Foundation,
estimates that the policies would be helpful to a quarter of the target
age group. He said he hoped half of that group would eventually buy
partnership policies.
The new law aims to eliminate at least one
stumbling block that could prevent the wider adoption of partnership
plans by making them more portable. Currently, the policies, for the
most part, are not portable.
Insurance bought in New York, for example, could be
used only to protect assets for someone who applies for Medicaid in New
York. If someone with a Connecticut policy retired in New York and fell
ill, the insurance would still cover their bills but the asset
protection would no longer apply.
Connecticut and Indiana have agreed to honor each
other’s asset protection promises, and talks are under way among the
other states for reciprocity agreements as well. But the new law assumes
states that set up partnerships would honor each others’ protections,
unless they opted out.
Of course, there are reasons that certain states
might want to opt out of those agreements. New York, for example, offers
some of the most generous Medicaid benefits in the country, so it could
be hurt if out-of-state retirees come to New York and receive Medicaid
coverage without spending their own assets first.
The federal law specifies that policies must
include inflation adjustments, although the requirements aren’t as
stringent as states wanted.
It also mandates that any consumer protections for
partnership policies must apply to all long-term care policies.
States that now offer partnership policies
generally require them to be more consumer-friendly than other long-term
care insurance policies. But the insurance industry argued that having
two sets of rules for long-term care insurance in each of 50 states
would make the regulations too complicated.
Send your comments on this story to
letters@stateline.org. Selected reader feedback will be posted in
the Letters to the editor section.
Contact Daniel C. Vock at
dvock@stateline.org.
Read more news about the states at
Stateline.org.
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