A new federal law is trying to motivate consumers to buy long-term care insurance. While those over age 50 should be considering coverage anyway, a few words of caution about the new program are in order.

The new law — the 2005 Deficit Reduction Omnibus Reconciliation Act, signed Feb. 8 — allows every state to adopt a “partnership” program for long-term care. These programs — already available for some time in New York, Connecticut, Indiana and California — allow consumers, in exchange for purchasing and maintaining qualified private long-term care insurance coverage, to retain their wealth while qualifying for Medicaid benefits.

Medicaid typically provides medical and long-term care services for those who can’t afford to pay, but those who receive Medicaid benefits have little say of the quality and type of care they receive.

The new partnership programs will allow you to retain, or “shelter” your assets, equal to the amount of private insurance benefits paid for your care, while qualifying for Medicaid. So, if you exhaust your $300,000 long-term care insurance policy, you will be allowed to keep $300,000 of your wealth, in addition to any usual allowance, and qualify for Medicaid benefits.

The experience in the four pilot states indicates that partnership programs produce low Medicaid utilization rates for long-term care. The federal and state governments are interested in reducing the potentially gigantic liability they face for massive long-term care claims against their Medicaid programs as the baby boomers move into old age. The government is, in the interest of taxpayers, trying to motivate you to insure yourself so that you won’t be as likely to wind up a burden to society.

Now, the words of caution:

One of the unfortunate side effects of the new law, based on past experience, is that it will be used as an excuse for procrastination. It can be tempting to put off an otherwise imminent purchase of insurance to wait for a new partnership program to arrive in your state. This reasoning is flawed. For one thing, the partnership programs, while good for society, may not be so beneficial for you.

There are two ways that partnership programs help reduce Medicaid claims. First, they encourage the use of private insurance to cover the cost of care. Second, they allow for the preservation of personal assets that can also be used to pay for care. Think about it: If you’ve got $300,000 in the bank, are you going to put your care in the hands of a public welfare program just because you’re eligible? Probably not.

The partnership programs also have their limitations. You may be required to buy a special policy in your state. These policies may be more expensive than similar retail alternatives offering similar benefits. And, while your policy benefits will be portable from state to state, your partnership benefits may not. If you buy a partnership policy in one state, you may not qualify for partnership Medicaid eligibility benefits in another.

Finally, these partnership programs may take years to develop and implement in your state. In fact, there is no requirement that your state implement one at all. If you’re in the market for long-term care insurance, then you’ll probably lose more by waiting than you’ll gain from participating in a partnership program. The premiums are designed to increase enough each year you wait to buy so that you can expect to pay more over your lifetime if you wait. Your health is also critical to the rate you are offered, and some seemingly innocuous conditions, a joint injury or arthritis, for example, can mean higher rates or even make you ineligible.

The Federal Long-Term Care Insurance Program, a key resource for federal employees and families, is not qualified as a partnership policy in any of the states that currently offer a program. Don’t let this stop you: If you haven’t already, you should seriously consider long-term care insurance, particularly if you’re over age 50.

Pretend that you’re 85 years old and have lived a long and healthy life, but now things are changing and you need some help. Maybe it’s full-time nursing care or part-time help at home, and the cost for this care is $70,000 per year. You can pay for this care out of your pocket or an insurer can pay. If you’re going to buy insurance, it’s smart to buy earlier than later. You’ll give yourself the best chance of locking in the lowest rate and lowest long-term cost possible.

Written by Mike Miles
For the Federal Times
Publication April 17, 2006