Pennsylvania Long Term Care Partnership Program Update

Thomas M. Lilly, JD CLU
April 2, 2009

[This article was written for an Elder Law Conference in April of 2009. Periodic updates will be provided on my blog at www.ltcalternatives.com.]

Only nine insurers are currently listed on the PA Department of Insurance website as offering long term care Qualified Partnership policies. Of the nine, six are “A” rated or better by at least two major rating services. However, seventy-four carriers are listed on the website as offering long term care insurance in the Commonwealth. (See: www.ins.state.pa.us/ins > publications > long term care insurance > companies selling long term care insurance)

The failure of a number of the major long term care insurers doing business in Pennsylvania to bring Partnership Program approved policies to the market is, at least in this writer’s opinion, a disservice to the future care of the citizens of Pennsylvania. Hopefully, your clients will find acceptable health underwriting, an appropriate benefit structure, and a competitive current premium consistent with their needs among the present six well-rated Partnership Program participating insurers.

What is special about a Partnership LTC policy?

Not the premium. Premiums for Partnership qualified LTC policies and identically structured non-Partnership policies are the same.

Not the underwriting. The medical requirements established by an insurer for evaluating an applicant’s insurability are identical for Partnership and for non-Partnership policies.

Not the benefit structure. Depending on the applicant’s age, a Partnership policy must include an automatic annual compound benefit increase provision (for purchasers under age 61) or some level of automatic annual inflation protection (for purchasers between ages 61through 75), but the same inflation protection may be included in a non-Partnership policy.

What makes a Partnership policy special is Asset Disregard. Benefits paid from a Partnership policy provide dollar for dollar protection against Medicaid spend-down requirements for assets which would otherwise be subject to the spend-down regulation. That protection is called asset disregard.

If your client received, for example, $175,350 in benefits from his or her Partnership policy, and subsequently applied for Medical Assistance, $175,350 of assets which would normally be subject to spend-down would be disregarded, totally protected from the spend-down rule.

A Very Practical Issue

If your client purchases a Partnership policy, and later goes on claim, but finds that the policy benefit is inadequate to cover the cost of care, and applies for Medical Assistance, he or she may have substantially lost the asset disregard benefit.

An example: Assume that the actual cost of care is $7,100 a month and that that cost would have been fully covered by his LTC Partnership policy. However, if his maximum monthly policy benefit is only $4,500, he would need to pay $2,600 a month out-of-pocket.

Further assume that his policy’s maximum benefit period is four years at a monthly withdrawal rate of $4,500. With $7,100 a month cost of care and an insured benefit of $4,500, he would spend $124,800 out-of-pocket before he exhausted his Partnership policy benefits.

The Department of Public Welfare (DPW), which will administer the asset disregard benefit determination, will not allow a Partnership policy insured to anticipate asset disregard benefits. The only Partnership policy benefit dollars which will qualify for asset disregard are those which have been actually received by the insured.

In our example, asset disregard did not protect the insured from having to spend $124,800 to make up the difference in his cost of care. Asset disregard would only be of value to him if, having exhausted his Partnership policy benefits, he still has non-protected assets up to $124,800. (See also the Practice Point/a matter of timing comment below.)

Practice Points: If you are counseling a client who is considering the purchase of LTC insurance, and who wants to be reasonably sure that asset disregard would be available should he or she need to apply for MA in the future, advise your client to:

• Design a benefit structure that most appropriately fits his or her likely net future financial need. Not an easy task, but a best estimate should be made, and periodically reviewed. An inadequate benefit amount may well vitiate the future value of asset disregard.
• Obtain anonymous preliminary competitive health underwriting from at least three major LTC insurers.
• Select the insurer that will provide the most currently competitive underwriting for the appropriate benefit structure. Because premiums will likely increase in the future, focus on underwriting and benefit values before current premiums.
• Among competitive insurers, finally select the company, if any, which offers a Pennsylvania Qualified Partnership policy. Should your client anticipate retiring in the near future to another state, he should both consider the cost of care in the area to which he anticipates retiring, and determine whether that state has enacted a Partnership Program and agreed to reciprocity with other Partnership Program states.

Please note that the Partnership qualification of a policy should arguably be considered last, as a bonus, not a carrot. If the policy structure (monthly benefit, elimination period, benefit period, inflation provision, perhaps shared care, and current premium) doesn’t meet your client’s anticipated future needs, and if the insurer isn’t consistently well-rated and committed to the LTC market, the fact that the benefit would qualify for asset disregard may have little meaning if, on claim, substantial out-of-pocket expenses erode the very assets which would have qualified for disregard.

Practice Point/a matter of timing: If your client is insured under a PA Partnership policy and is on claim, but the benefit is inadequate to cover the cost of care, as in the example discussed above, you will need to help the client determine the tipping point at which the benefits he or she has received and which are eligible for asset disregard equal his remaining vulnerable assets.

Note: It is my understanding that DPW doesn’t yet have a written policy in place for the administration of the asset disregard benefit because claims involving Partnership policies are not expected for at least the near future. However, I have neither read nor heard any suggestion that DPW will require a Medical Assistance applicant who is medically qualified and who is insured under a Qualified LTC Partnership policy to exhaust his or her policy benefits before allowing the protection of asset disregard to be effective. Hence the “tipping point” suggestion.

A Pennsylvania LTC Qualified Partnership Program Nutshell

Notice 2008-05 (superceding Notice 2008-03), published April 19, 2008 at 38 Pa.B.1907, remains the most recent Long-Term Care Partnership Program Effective Date and Revised Guidance Announcement.

Several key points in that Guidance concern Producer Training, Policy Exchanges, Inflation Protection, and Policyholder Notification at the Time of Purchase.

Producer Licensing/Training

Pennsylvania currently requires that a producer (agent) complete a 1 hour PA specific training session in order to be able to sell any Partnership long term care policy in the Commonwealth.

A regulation requiring completion of an 8 hour training course as a condition precedent for a producer to be able to sell any long term care insurance policy in Pennsylvania, followed by a 4 hour long term care training requirement in a producer’s subsequent two year licensing cycles, has been drafted and is currently being reviewed. (The Revised Guidance Announcement at 38 Pa.B.1907 had set the completion date for the 8 hour training course regulation as December 31, 2008.) See 38 Pa.B. 3359, published June 21, 2008.

Policy Exchanges

Carriers which receive approval for the sale of a Partnership policy in the Commonwealth must offer to exchange for a Partnership policy any Health Insurance Portability and Accountability Act (HIPAA) qualified policy or certificate issued between February 8, 2006 (the effective date of the Deficit Reduction Act) and the date on which the carrier has its approved Partnership policy available for sale. Act 40 of 2007 details the requirements for such an exchange. However, it is my understanding that there is disagreement between the insurers and the Commonwealth over the implementation of such an exchange program. Some suggest that it is such a disagreement which is causing a number of major LTC carriers doing business in Pennsylvania from submitting products for approval as Qualified Partnership policies. Stay tuned.

Inflation Protection

The Deficit Reduction Act mandates that a Qualified Partnership Program policy include inflation protection as follows:

• For purchasers under 61 years old at the time the policy is issued, compound annual inflation protection must be included;
• For purchasers age 61 through age 75 at the time the policy is issued, some level of annual inflation protection must be included;
• For purchasers whose issue age is 76 or older, inflation protection may be offered but is not required.

Pennsylvania’s Revised Guidance, cited earlier, defines “compound annual inflation protection” as meaning either “compound coverage that automatically increases annually at a rate equal to the Consumer Price Index (CPI) or at a fixed rate of not less than 3%.” For purchasers 61 through 75 years of age, the Revised Guidance defines “some level of annual inflation protection” to mean either compound or simple inflation protection at a rate equal to the CPI or at a fixed rate of not less than 3%.”

Policyholder Notification at Time of Purchase

This is a useful Notice which, I think, clearly explains asset disregard to the consumer in a section captioned “Medical Assistance Resource Protection Provided”. The Notice states in part:

“In particular, [Qualified Partnership Policies] permit individuals to protect resources under Pennsylvania’s Medical Assistance Long- Term Care Program if assistance is ever needed under that program and the individual would be otherwise eligible for Medical Assistance Long-Term Care. In addition, if these specific protected resources are still in existence when the individual dies and they are part of the decedent’s probate estate, they will not be recoverable under Pennsylvania’s Medical Assistance Estate Recovery Program.

“. . . Specifically, the resource, eligibility, and estate recovery provisions of the Pennsylvania Medical Assistance program permit the disregard of an amount of assets which is equal to the amount of insurance benefits you have received from your Qualified Partnership Policy. For example, if you receive $200,000 of insurance benefits from your Qualified Partnership Policy, you would be able to retain $200,000 of resources and still be eligible for long-term care services provided under the Medical Assistance Program. This disregard is above and beyond the resources normally permitted to be retained by an individual and still qualify for Medical Assistance. This protection of assets applies to individuals in need of long term care services both in the community or residing in a long-term care facility.”

Practice Point: You could use the asset disregard section to explain to a client the potential particular future value of a Partnership policy beyond the contractual values of the policy.

Under “Additional Consumer Protections” the Notice also points out the generally federal income tax free character of benefits received under a Partnership policy as well as the age-graded requirement for the provision of inflation protection.

The Notice provides several important caveats as to “What Could Disqualify Your Policy as a Partnership Policy?” They are:

• “If you make any changes to your policy or certificate, such changes could affect whether your policy or certificate continues to qualify as a Qualified Partnership Policy. Before you make any changes, you should consult with the issuer of your policy to determine the effect of a proposed change.
• “In addition, if you move to a State that does not maintain a Qualified Partnership or does not recognize your policy as a Qualified Partnership Policy, you would not be eligible to receive Medical Assistance asset protection in that State.
• “Also, changes in Federal or State law could affect the Medical Assistance asset protection available with respect to your Qualified Partnership Policy.”

Conclusion

The core of insurance is the transfer of risk. Knowing that the protection of asset disregard may be available, at no additional premium cost, should the risk that becomes reality for your client exceed the risk for which his Partnership policy insured him could be a financial life saving bonus.

Your client should select a Pennsylvania Qualified Partnership Program long term care policy so long as the policy is offered by a consistently well-rated and LTC market committed insurer and the benefit structure meets his or her well thought out likely future needs.

© 2009 T. M. Lilly. May be reprinted with credit.