California Partnership for Long Term Care Insurance

Protect your assets from MediCaid spend-down and/or estate recovery requirements

Is a California Long Term Care Partnership Insurance Policy Right for You?

Note: This blog is intended primarily for California residents.

The majority of individuals are under the impression that any future long term care (LTC) expenses they may incur will be covered by Medicare once they are eligible for this government program. Unfortunately, that is not the case. Medicare provides only limited coverage for the first 100 days of skilled care in a nursing home, so long as you meet their qualifying conditions. It doesn’t cover “custodial care” like what you would receive in your home.

In addition, neither Medicare supplement (Medigap) insurance nor Medicare Advantage plans provide any significant degree of coverage for long term care.

The reality is that 70% of individuals who make it to the current retirement age (assumed for this blog to be 65) will require long term care services at some point, and Medicare is not a solution.

What about Medi-Cal?

Medi-Cal is California’s version of Medicaid, a government funded program that provides health services to the very poor. In order to qualify for any benefits under Medi-Cal, you are required to first exhaust your assets to below poverty levels. This can be devastating to individuals who wish to maintain any decent standard of living for their surviving spouse/partner and/or leave an estate for his/her family.

Let’s focus in on Medi-Cal and Long Term Care Insurance

So is there a solution where you can protect some of your assets (above the program’s minimum levels) from having to be “spent-down” in Medi-Cal terms (depleted) in order to qualify for Medi-Cal?

Yes. 

The California Partnership Long Term Care program (CAPLTC) offers a solution to this problem.

Simply put, the California Partnership program is a joint venture between the State of California and participating private LTC insurance carriers. These private companies sell long term care insurance policies that have been approved by the state for the Partnership program by meeting certain standards, such as having mandatory inflation protection (this is both an advantage and disadvantage…will explain later.)

Currently, the only participating carriers in the California Partnership program are Genworth and New York Life.

Under this program, a long term care insurance policy that qualifies under the CAPLTC program will have the added benefit of a policy owner who is applying for Medi-Cal being able to protect some assets from the state’s “spend down” provisions under Medi-Cal’s rules.

Generally speaking, someone who wants to qualify for Medi-Cal must first exhaust most of their assets. Under the CAPLTC program, the person who owns a qualified Partnership LTC policy is allowed to keep a dollar of their assets for every dollar of LTC benefits that are paid out by the policy.

As an example, you buy a CAPLTC qualified policy and it pays out $200,000 in LTC benefits. You then apply for Medi-Cal benefits. MediCal will allow you to keep $200,000 of your own assets plus the nominal amount of “countable assets” required under the Medi-Cal program ($2000) along with a few other “noncountable assets.”  Also when you pass away Medi-Cal will not try to recover the $200,000 in assets you were allowed to keep because you had a CAPLTC qualified policy that paid $200,000 in LTC benefits. This is THE primary advantage of owning a California Partnership eligible long term care policy!

It is important to remember that someone who owns a Partnership policy does not have to wait until the benefits of his policy are exhausted to apply for Medi-Cal. However, the amount of assets that will be protected from Medi-Cal’s “spend down” provisions and asset recovery after death is based on the amount of insurance benefits that a Medi-Cal applicant has received when he or she is approved under Medi-Cal. Waiting until all LTC insurance benefits have been paid may be, but not always, advantageous. Every situation will be different.

What is the difference between a CA Partnership LTC insurance policy vs a regular LTC insurance policy? 

The CAPLTC qualified policies provide an exclusive “Medi-Cal Asset Protection” feature.
Again, this is the most important difference between the two different types of policies. However there may be policy features, riders or other benefits in a regular LTC insurance policy that may not be offered in a CA Partnership policy. It is important to look at both types of policies before making a purchase!

For example, in the CA Partnership policy, the state mandates that the insurance company has to offer a 5% compound inflation rider for anyone under the age of 70 AND it is the only compound inflation rider that can be included in the policy. The policy owner must accept the 5% compound inflation rider…period. For policy owner’s 70 and above the state requires that the policy also offer a 5% simple inflation rider along with the 5% compound inflation rider. Again, the policy owner must elect one or the other.

While inflation protection riders are important there are situations when designing a policy for someone where a different strategy (not using an inflation rider or perhaps using a inflation percentage other than what CA mandates in the Partnership policies) may be more appropriate.  With regular (non-Partnership) LTC insurance policies there are often many different compound and simple inflation riders to choose from adding a lot of flexibility to design the policy that’s right for your situation. With the Partnership policies planning opportunities may be limited.

Another difference of note is that currently CA Partnership qualified policies must offer a starting minimum daily benefit of $180/day. Regular (non-Partnership) policies may have daily benefits that start as low as $50/day. Once again planning opportunities may be limited with the Partnership policy in certain situations due to this minimum daily benefit requirement.

Can the premiums for my CAPLTC policy ever increase?

Although CAPLTC insurance plans are still subject to rate increase requests from the respective Partnership-enrolled insurance carriers, they are generally speaking more difficult to approve. This is because CA Partnership plans must not only receive approval from the CA Department of Insurance, but also must receive rate increase approval from the CA Department of Aging (premium increase requests for non-Partnership policies do not need the approval of the Dept. of Aging).

Important Note about reciprocity when moving from one state to another

Bear in mind that currently the Medicaid asset protection afforded by a Partnership policy will work only if you receive your long-term care in the state where you bought the Partnership policy, or in another partnership state that has a reciprocal agreement with the state where you bought the original Partnership policy.

When you purchase a CA Partnership long term care insurance policy (as of this blog date) it is important to know that if you move to another state in the future and you ultimately need to access the benefits under your policy, there will be no asset protection afforded by the state Medicaid system in your new state.

California is the only state that as of today has no reciprocity agreement with any other state, which means your Medicaid asset protection benefit will only protect you while living in the state of CA. If you chose to relocate outside of CA, you would still receive policy benefits, but you would lose the asset protection advantage.

Who Should Buy a CAPLTC policy?

A CAPLTC qualified policy generally is appealing and most appropriate for someone who has accumulated a comfortable retirement nest egg and is concerned that future long term care costs may deplete their assets and force them to apply for Medi-Cal with its “spend down” rules.

Key point to remember of this blog: For every dollar of long term care benefit paid out by the Partnership qualified policy a Medi-Cal recipient gets to keep a dollar of his or her own assets.

 

Only a qualified attorney or CPA can provide legal or tax advice and we recommend that everyone should consult with their advisory team as to any tax consequences when purchasing long-term care insurance.

As an independent LTCi Advisor, my goal is to provide unbiased advice and help educate you on the various options available to you when planning for Long Term Care.
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Scott F. Coomes, J.D., CFP®, CLU®, ChFC®

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