What Are the Risks of Long-Term Care Insurance Partnerships?

Long term care insurance partnerships

Question: I’d like your explanation and opinion about long-term care insurance partnership programs available in some states. I’m looking at some literature that says there’s no additional cost, so what’s the downside?

Ric: Well, the downside is that it’s another government program, and will the government be able to afford it?

Aside from that risk, the program is great. We factor it into our analysis of calculating how much LTC insurance clients need to buy. We don’t see a reason why anyone would get an LTC policy that’s not in a state partnership program.

States developed these programs because much of the cost of long-term care falls on them. If you’re poor, Medicaid picks up the tab. States spend billions of dollars on care for citizens who have no money. The partnership concept is a good idea for helping solve this dilemma.

Here’s how it works: Let’s say you buy an LTC policy from an insurer that pays a maximum of $300,000 if/when you need to use it. If you later need care and eventually spend the entire $300,000, the state allows you to keep $300,000 of your own money (or a sum equal to what your policy paid out) and still qualify for Medicaid. In the past, the state would have forced you to spend all your money first.

In other words, the state is giving you an incentive to buy LTC insurance. If you buy it, you get to keep some of your money while still qualifying for Medicaid. If you don’t buy it, you won’t get Medicaid until you spend all your money.

Thus, by getting you to buy the policy, the state is getting an insurance company to pay for some of the care, and the states are hoping that this will ultimately reduce the amount they have to pay. It’s a good theory, and we see no downside for you.

Originally published in Inside Personal Finance December 2013

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