February 16, 2006
New Law Pushes Long-Term Care Coverage
By Daniel C. Vock, Staff Writer
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.
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.