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LTC Partnerships Article

Long-Term Care Partnerships – How They Affect Clients of Fee-Only Financial Advisors?

Long-term care insurance partnerships are a cooperation between individuals, insurance companies and state Medicaid agencies. Individuals who purchase long-term care partnership policies are afforded asset protection in the event they exhaust benefits payable under their individual long-term care policy. Several states have already adopted a partnership program while many others are in the process of doing so. Although there are advantages to long-term care partnership policies there are also disadvantages for the clients of fee-only financial advisors.

We must first understand basic Medicaid eligibility for long-term care payment. States have strict income and asset guidelines that individuals must meet prior to receiving benefits. Partnership policies do not protect income generated by protected assets. Therefore, many individuals who have assets that produce income may never benefit from state Medicaid programs, regardless of whether or not asset protection was afforded. Many clients of fee-only financial advisors have income producing assets which exceed the expense of long-term care.

“Why would we purchase excess coverage just to meet partnership requirements if the client would never qualify for Medicaid due to income anyway?”

Medicaid programs may not pay for the same level of care as provided by a long-term care policy or individual funds. For example, in Indiana, the state’s Medicaid program will not pay room and board expenses while in assisted living facilities. Therefore, an individual may still need to pay for care from protected assets if they reside in an assisted living facility.

Many clients of fee-only financial advisors have the financial ability to self insure a significant portion if not all the expenses of long-term care. Generally, these people elect long-term care insurance because it is a more efficient way to pay the expenses of long-term care if needed. Because of this, I often recommend a level of coinsurance when purchasing a long-term care policy. For example, a person would only need to purchase a long-term care insurance policy with $2,500.00 per month in benefit if long-term care expenses are estimated at $5,000.00 per month and the individual is willing to spend $30,000.00 per year out-of-pocket for care. This represents a 50% co-insurance. Partnership policies may force individuals to purchase more coverage to qualify as a partnership plan. Why would we purchase excess coverage just to meet partnership requirements if the client would never qualify for Medicaid due to income anyway?

Data provided by the California Partnership for Long-Term Care’s Third Quarter 2007 Report indicated that only 38 of the 89,658 insureds have actually qualified for Medi-Cal once the policyholder exhausted the policy’s benefits. Only two insureds have qualified for Medi-Cal once they exhausted policy benefits when the policy’s benefit period was equal to or greater than three years. This further illustrates the point that not all individuals will qualify for Medicaid payment for longterm care expenses.

There are several factors we must consider when implementing long-term care insurance. Advisor Insurance Resource® is dedicated to evaluating all aspects of long-term care insurance planning, including potential partnership benefits.