Pennsylvania
to
Implement Long-Term Care Insurance Partnership
Program
Written
By: Jeffrey A. Marshall, CELA*
Getting
Alzheimer's, multi-infarct dementia, Parkinson's,
COPD, or any other long-term care related
illness, is a catastrophic event for the
affected individual and family. Tremendous
physical and emotional burdens must be borne
by the affected individual and family
caregivers.
Should they also bear the full
financial burden of the cost of the needed
care?
Our
political system has pretty much answered that
question yes - the affected individual should
only get public assistance for long-term care
when their privately available resources are
gone. Medicare provides substantial coverage
for acute illness, but its coverage of long
term care is very limited.
The major public-funded source of
financial assistance for long term care is
Medicaid, for which seniors can qualify for
only after they have exhausted their ability
to privately pay for needed care.
Despite
these financial restrictions, government is
forced to expend significant public funds on
long term care. The problem is that extended
long-term care services are expensive.
And they are a cost for which few
private individuals save.
An individual's private funds are
soon exhausted.
All but the wealthiest elders will
eventually run out of private resources and
then turn to public Medicaid funds to pay for
the care they need.
In order to
reduce reliance on Medicaid, federal and state
governments would like to see people save more
to pay for the long term care they may someday
need. To
the extent individuals save more for their
long-term care, government should have to pay
less.
What
is a Partnership Program?
One way that
individuals can save for the cost of long term
care is through the purchase of insurance
policies specifically designed to pay those
costs. "Long Term Care Insurance
Partnership" programs are a way that the
government seeks to encourage people to buy
these policies.
Originally
developed by policy makers in the mid-1980s,
partnership programs combine private insurance
with special access to Medicaid.
Individuals who have exhausted the
benefits of their partnership policy are
permitted to preserve more assets than would
otherwise be permitted by Medicaid rules.
(The income and functional eligibility
rules are not affected.
The applicant must still meet income
co-payment and other Medicaid requirements.)
The ability to protect additional assets from
becoming lost to the cost of care is an
incentive meant to encourage middle class
individuals to purchase long term care
insurance.
Does this
additional incentive encourage individuals who
would not otherwise purchase long-term-care
insurance to do so?
Policymakers in the 1980s initially
projected that adoption of partnership
programs in all 50 states could eventually
reduce Medicaid expenditures for long term
care for the elderly by 5 to7 percent.
However, it now appears that this projection
was too optimistic.
Recent studies question whether any tax
savings are achieved.
Only four states (
California
,
Connecticut
,
Indiana
and
New York
) had partnership programs approved when
Congress had second thoughts about the programs.
The Omnibus Budget Reconciliation Act (OBRA)
of 1993 grand-fathered the four existing program
states, but it required future state programs to
recover assets from the estates of all persons
receiving services under Medicaid. These new
estate recovery provisions has the effect of
limiting the partnership asset protection to the
time when the insured was alive. Since a major
attraction of partnership policies was the
ability of insureds to pass additional assets to
their heirs, OBRA 93 effectively ended the
implementation of new partnership programs.
In February 2006, the
Deficit Reduction Act of 2005 (DRA) was enacted.
The DRA allows the long-term-care
insurance partnerships to be implemented in new
states by relaxing the estate recovery
requirement for policyholders. In addition to
promoting partnership programs, the DRA also
seeks to encourage the purchase of insurance by
making it harder for seniors to give away assets
before applying for Medicaid and reducing
spousal protections.
Policies issued in new DRA
partnership programs must meet specific
criteria, including federal tax qualification,
consumer protection and inflation protection
requirements. Compound annual inflation
protection is required for purchasers below age
61. (States
get to determine the percentage rate).
An undefined level of inflation
protection is also required for purchasers
between the ages of 61 and 75. (Of course, the
inclusion of inflation protection will increase
the cost of policies). States may also decide to
allow purchasers to use their benefits in other
partnership states (reciprocity).
Pennsylvania's
Act 40
In
Pennsylvania
, the Legislature and Governor have now approved
the creation of a Long-Term Care Partnership
Program for
Pennsylvania
(Act 40 of 2007).
Act 40 was signed into law
July 18, 2007
. The Long-Term Care Partnership program
provisions take effect 60 days after that date.
However, additional steps must be taken
in order to implement a program in our state.
Medicaid is a joint
federal-state program that is administered by
the individual states according to their
Medicaid state plans.
The state plans are set up within broad
federal guidelines and must be approved by the
federal government agency in charge of Medicaid
(CMS). State plans specify when an individual
becomes financially eligible to receive Medicaid
benefits. When a state wants to make changes in
its Medicaid program that go beyond the
parameters previously approved by CMS, the state
must submit a plan amendment for approval.
Unlike so-called "waiver programs,"
CMS' role in this case is not to waive
compliance with the federal law, but merely, to
approve modifications within existing federal
statutory authority as set forth in the DRA.
Act 40 directs the
Department of Public Welfare (DPW) to file a
state plan amendment with CMS within 60 days of
the effective day of the Act.
In large part, the Legislature has left
the details of the program to DPW, and merely
directed it to comply with the DRA. However, Act
40 does mandate that all insurers offering a
qualified long term care partnership program
policy must offer to exchange any policy or
certificate issued between
February 8, 2006
and the date the state plan amendment takes
effect with a qualified partnership policy.
Additional requirements for the exchange
of policies are located in Section 3(C) of the
Act which is available on the
Marshall
, Parker and Associates website at the following
link: http://www.paelderlaw.com/pdf/act_40.pdf.
Insurance
producers should note that the Act also requires
all producers (resident and non-resident)
licensed in Pennsylvania who intend to sell,
solicit or negotiate long term care insurance
MUST complete the "Pennsylvania Medicaid Long
Term Care Services" course BEFORE they can
market Long Term Care services.
Doubts
about Partnership Program Savings
Act
40 states its purpose as follows:
"The purpose of this program is to
reduce future Medicaid costs for long-term care
by delaying or eliminating dependence on
Medicaid by providing incentives for individuals
to ensure against the potentially substantial
costs that arise upon the need for long-term
care." (Act 40 of 2007, Section 3.)
Unfortunately,
studies suggest that
Pennsylvania
's partnership program may be an ineffective
way to reduce Medicaid costs.
The title of a Government Accounting
Office Report issued in May of
this year summarizes the report's
conclusions:
"Long Term Care Insurance Partnership
Programs: Include Benefits that Protect
Policyholders and Are Unlikely to Result in
Medicaid Savings."
A copy of the report is available online
at http://www.gao.gov/new.items/d07231.pdf
A
copy of Act 40 is available on
Marshall
,
Parker & Associates' website at http://www.paelderlaw.com/pdf/act_40.pdf.
Attorney
Marshall can be contacted at webmail@paelderlaw.com
or at 1-800-401-4552
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