Long term care costs are arguably the most critical risk to you, your loved ones and your estate. Yet many people aren’t aware of the asset protection benefits that are made available by the federal government to the states through long term care partnership programs. In an nutshell, the Federal Deficit Reduction Act provides asset protection by allowing states to have a partnership program for long term care.(1)
This article will dive into the topic of “partnership eligible long term care insurance” to define what this is AND the various differences between the states. Then we’ll take a look at how these programs can provide you and your loved ones with an important asset protection benefit.
Defining Long Term Care Partnership Programs
The Long Term Care Partnership Program is a federally sponsored program that is adopted at the initiative of each state.
These programs allow individuals who purchase a certain type of long term care insurance known as partnership eligible a/k/a “partnership qualified” to protect of portion of their assets.
This partnership protection allows the policy owner to preserve a portion of their assets that would otherwise have to be “spent down” under the state and federal Medicaid laws.
Medicaid “Spend Down” Requirements
Medicaid is a need based program for providing long term medical support for chronic illness. This program is federally funded and operated by the individual states who have some discretion in adopting the rules.
Thus, the coverage and options in various states can vary. What is fairly consistent are the “spend down requirements” which generally allow the applicant to only have around $2,000 in “non-exempt” assets. Spouses who do not need Medicaid can usually keep around $120,000 in non-exempt assets.
How the LTC Partnership Plans Provide Asset Protection
By exempt (vs. non-exempt) assets, I’m referring to assets that would not be “countable” under the various states Medicaid rules.
For example, in Florida, the personal residence of the application is generally an exempt asset and thus is not counted in the minimum allowable asset limit for either the applicant or well spouse. Other exempt assets, using Florida as an example, may include a personal vehicle, certain annuities or a rental property under certain circumstances.
It follows that the category of assets that can be preserved under the long term care partnership programs is the non-exempt assets, the would require protection, for both the Medicaid applicant and the well spouse.
The way this works is that the amount of benefits received by a policy holder for eligible long term care expenses, if from a state qualified long term care insurance policy, can be retained by the Medicaid applicant as an offset to the Medicaid spend down requirement.
For example, if you use $20,000 in long term care insurance coverage benefits to pay for eligible long term care expenses, you would be allowed to keep about $22,000 dollars as the applicant spouse AND about $142,000 as a non-applicant well spouse.
Partnership Eligible Long Term Care Insurance
Qualified Long Term Care vs. Partnership Eligible Long Term Care
Not all long term care insurance policies offer the asset protection benefits discussed in this article.
So, what does it mean to purchase a “partnership eligible long term care insurance policy”.
To avoid any confusion, there is a difference between what may be referred to a “qualified long-term care policy for tax purposes” AND long term care insurance that is qualified or eligible under the state partnership programs. Because these terms are used somewhat loosely, it is easy to get confused.
Long term care insurance that is qualified for tax purposes refers to the ability to deduct long term care insurance premiums and benefits from your income. I.R.S. Rule 7702B, which was added as part of the Health Insurance Portability and Accountability Act of 1996, spells out the requirements that a long term care insurance policy must meet in order to be considered a tax qualified policy.(2)
The rather stringent requirements for tax qualified long term care insurance are the subject of another article. Suffice to say that under certain circumstances, this can be a viable part of a business asset protection and tax savings plan.
Defining Partnership Eligible Long Term Care
Partnership eligible long term care refers to specific long term care policies that are approved by the state to be sold as part of that state’s partnership program. There are a number of things to consider when shopping within your home state for this specific type of long term care insurance. The important questions to ask, as an educated consumer, are as follows:
Partnership Eligible Long Term Care and State Reciprocity
Another very important state by state consideration is whether “reciprocity is offered”. Reciprocity of long term care benefits is important because it provides a kind of “portability” for your long term care policy.
Here, we’re talking about the ability to move the long term care partnership asset protection benefits connected to your partnership eligible long term care policy from one reciprocal state of residence to another in the event the policy holder relocates.
Without reciprocity in the original where the long term care is purchased, the asset protection benefits afforded by a partnership eligible policy would be lost in the event of relocation to another state.
Researching Eligible Long Term Care Policies
There are many places to start when considering long term care insurance and, for the most part, the pool is just narrower if you’re committed to partnership eligible products. For example, you could research the best long term care insurance companies.
You can head to the bottom of this article to see the LTC Partnership states or check out our .pdf of long term care partnership states.
Another great place to start is the department of insurance in your state of residence because those who participate will typically offer resources to guide consumers.
Yet important part of this process is to familiarize yourself with the various products that are available. There are stand alone long term care products as well as riders (add-ons) to life insurance policies.
If you’re just interested in an add on, rather than a stand alone policy, then your goal may be to locate the best permanent life insurance company.
Among the various types of permanent life insurance, long term care riders are available for both dividend paying participating whole life and universal life insurance products such as indexed universal life and variable life insurance.
Among the genre of life insurance riders, there are both chronic care and long term care riders and it is important to understand the differences. There are also riders to annuity products that can be considered.
Long-Term Care Partnership States
|District of Columbia||Not Filed||---|
|New Mexico||Not Filed||---|
|New York||Original Partnership||Yes|
If you would like to see a LTC insurance illustration or if you have further questions about how LTCI can help your wealth protection and estate preservation plan, please give us a call today or enter your information in our long-term care insurance quote form.
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