Long-Term Care Partnership Policies
Last month, I began to address the topic of Partnership Plan long term care policies which became available in the state of Ohio just a few years ago. These plans have become increasingly important for those who wish to protect their assets from being consumed in their final years of life due to the costs associated with an extended stay in a nursing home. This month I would like to conclude this topic with some additional information and some commonly asked questions on this subject.
Inflation protection provisions
Inflation protection is another key feature of long-term care Partnership policies. Inflation protection means that benefits will increase over time. Although it may substantially increase premium cost, it helps the coverage keep pace with rising long-term care costs, especially since many years may pass between the time the policy is purchased and when benefits are needed. Traditional policies might offer inflation protection, but all Partnership policies are required to include some form of inflation protection, according to the following guidelines.
For individuals who are:
- Under age 61 at the date of purchase: The policy must include annual compound inflation protection
- Ages 61-76 at the date of purchase: The policy must include some type of inflation protection (but not necessarily annual compound inflation protection)
- Age 76 or older at the date of purchase: The policy is not required to include inflation protection, but may offer it
Compound inflation protection increases the daily benefit each year, essentially increasing the amount of asset protection each year. Although Partnership policies in the original four states use a 5 percent inflation factor, new Partnership states have the discretion to use any inflation factor they choose.
For individuals age 61 or older, the type of inflation protection that may be offered will vary. One available option may be future purchase inflation protection. With this type of inflation protection, policyholders will periodically be given the chance to purchase an increased daily benefit with no health underwriting.
Long-term care policies offered under state Partnership programs must be tax qualified. Policies are considered tax qualified if they meet standards specified by the Health Insurance Portability and Accountability Act (HIPAA). Part or all of the premiums paid for a tax-qualified policy may be deductible as a medical expense from federal income taxes. Premiums may be deductible for policyholders who itemize and whose total qualified medical expenses exceed 7.5 percent of their annual adjusted gross income, up to certain age-related limits. In addition, benefits received will generally not be considered taxable income. State income tax deductions or credits may also be available.
Questions and Answers
If someone purchases a Partnership policy, will he or she automatically qualify for Medicaid?
No. Medicaid eligibility is never automatic. To qualify, an individual must meet state eligibility requirements. It’s possible that even if someone exhausts his or her Partnership policy benefits, he or she will not qualify for Medicaid.
Do any residency restrictions apply to the sale of Partnership policies?
An individual purchasing a long-term care policy must be a resident of the state in which the policy is purchased.
What happens if someone purchases a Partnership policy in one state, then moves to another?
With Partnership policies, portability is a major concern. Although Partnership policy insurance protection is portable, asset protection is not. This means that if someone insured under one state’s Partnership program moves to another state, he or she can receive Partnership policy benefits, but his or her assets will not be shielded from Medicaid recovery in the new state. Fortunately, most states that offer Partnership policies have decided to participate in a national reciprocity agreement that allows state residents to retain dollar-for-dollar asset protection in any other state that participates in the agreement, assuming they qualify for Medicaid in their new state of residence. States can opt out of participating, however, so individuals thinking about purchasing a long-term care Partnership policy should consider the laws of the state in which they currently reside, and, if possible, the laws of any state in which they plan to reside someday.
Will states with new Partnership programs automatically convert existing traditional long-term care policies into Partnership policies?
No. Federal law prohibits the grandfathering of traditional long-term care policies. However, some states may allow insurers to exchange existing traditional policies for Partnership policies.
For additional information concerning any of the above listed topics feel free to call us at
330-852-7800 or 800-426-8362, e-mail me at Neal@GetCovenant.com or write to me at- Dollars and Sense, C/O The Outreacher, P. O. Box 1115, New Philadelphia, OH 44663.
If you have questions in the area of finances and investing, feel free to forward them to me at the above addresses as well.
SM- All investments involve risk, and performance is NOT guaranteed. The primary content of this article was prepared by Forefield Financial, Inc. For a full copy of the report, please feel free to contact us. Advisory services are provided through Creative Financial Designs, Inc., Registered Investment Adviser, and securities are offered through cfd Investments, Inc., a registered Broker/Dealer. Member FINRA & SIPC 2704 South Goyer Road Kokomo, IN 46902 (765) 453-9600. Covenant Financial Advisors is not owned, controlled, or affiliated with CFD Investments, Inc., or Creative Financial Designs