Colorado Long Term Care Partnership

Sounds mysterious, but is really very simple.  Here is how it works:

1. You purchase a “Colorado Long Term Care Partnership” insurance policy.

2. At some point in the future, you file a claim and the policy then pays you a benefit.

3. Each dollar of benefit paid by the policy increases the amount of assets you can keep, by one dollar, and still qualify for Medicaid Long Term Care.  There is no upper limit on how many dollars of assets can be “offset” for purposes of qualifying for Medicaid.

Example:  Colorado resident Sue is an un-remaried widow with a $400,000 net worth.  Her estate plan includes leaving $100,000 to each of her three grandchildren.  Because Sue is not currently married, the Medicaid qualification rules do not allow her to have more than $2,000 in countable assets.  Sue prudently purchased a Colorado Long Term Care Partnership insurance policy two years ago.  She later had a stroke that left her needing 12 hours per day of home health care (Sue could have gone to assisted living, but wanted to stay in her own home.).  Over time, the insurance policy paid Sue $300,000 before running out of benefits (It was a small policy.).  

Sue can now qualify for Medicaid while retaining $302,000 ($300,000 Medicaid asset offset plus the originally allowable $2,000).  Because she had a Colorado Long Term Care Partnership insurance policy, Sue’s grandchildren will receive their intended inheritances.  Without the Partnership insurance policy, Sue would have had to spend down her assets to $2,000 leaving nothing for her “grands”.  Of even greater importance, Sue had $300,000 in policy benefits that she controlled…she was able to remain in her own home and to select, pay for, and replace her professional caregivers if she wanted to. 

Note that if Sue had been married when she applied for Medicaid, the maximum allowable combined assets (not counting equity in her home) would be about $112,000.  Thus, given the above example, she and her husband could have retained $412,000 net worth (plus home equity) and still have met the Medicaid maximum asset requirement.

What makes an insurance policy qualify as “Colorado Long Term Care Partnership”?  All of the following conditions must be met:

1. Policy date:  The policy must have been issued on or after January 1, 2008. This seems unfair (and it is) for people, including myself, who purchased policies earlier.  Note: John Hancock Life Insurance Company is in the process of mailing an information packet to policyowners who purchased otherwise-qualifying Colorado Long Term Care Partnership policies between February 8, 2006 and January 1, 2008.  Contact me if you own a John Hancock policy issued between these dates. 

2. Inflation protection: The policy must include age-appropriate inflation protection.  “Age” refers to the insured person’s age when the policy was issued. 

    a. Under age 61: Must be a minimum of 5% annual compounded interest or the Consumer Price Index (CPI) computed annually.  A guaranteed/future purchase option is not acceptable. 

    b. For ages 61 through 75: Must be a minimum of 3% compounded annually or; 5% simple interest annually or; CPI computed annually or; 5% compounded annually capped at twice the initial benefit amount.  A guaranteed/future purchase option is not acceptable.

    c. Over age 75: Inflation protection is optional.

3. Residency: The insured person must have been a resident of Colorado (or a Partnership reciprocating state) when the policy was issued and a Colorado or reciprocating state resident when applying for Medicaid.

4. Other requirements: Must meet the criteria for “tax-qualified” as defined by the IRS in the Internal Revenue Code.  Must also meet the Long Term Care insurance requirements of the Deficit Reduction Act of 2005.

5. The policy must have been approved for Partnership by the Colorado Division of Insurance.

As a practical matter, what is the value to consumers of the Colorado Long term Care Partnership?

Being covered by a Colorado Long Term Care Partnership policy may have a huge positive financial impact.  Relative wealth comes and goes.  No one knows what the stock market (and real estate market) will be like when you need care.  If your financial situation ever necessitates reliance upon Medicaid, having a Partnership-qualified policy will allow you to keep significant asset amounts that you would otherwise be required to spend down.  Is Partnership yet another good reason to buy Long Term care insurance?  Definitely!

How much more expensive is a Partnership policy?  Other than requiring age-appropriate inflation protection (which should be included anyway), there should be no difference in cost.  In my view, there is no justification for an insurance company to charge more for Partnership policies of the same benefit design..and almost no companies do.

Who is Partnership good for?

1. People who have assets worth protecting, but want to know that the Medicaid “safety net” will be available without having to spend down almost all of what they own..  

2. The State of Colorado because it shortens the amount of time policyowners will actually spend on Medicaid.  Colorado and the Federal Government each pay about half the cost of Medicaid.  Think about it…while someone’s cost of Long Term Care services is being paid by policy benefits, that person is not on Medicaid and our state does not have the expense. 

3. Insurance companies because Partnership motivates more people to buy Long Term Care policies.

Some Partnership Odds and Ends:

Should you replace an older policy with a newer one merely to get the benefit of the Colorado Long Term Care Partnership?  The answer is “Probably not”.  While Partnership can prove to be a valuable benefit, that benefit does not usually outweigh the much higher ongoing cost of a new policy issued at an older age.  Other states: Almost all states now have Long Term Care Partnership programs in place.  Most, but not all, offer reciprocity.   California, Connecticut, Indiana and New York Partnership plans are so different from the other states that reciprocity is unlikely to ever happen.  Now that you know more about the Long Term Care Partnership than most folks, call me with your remaining unanswered questions.  I would love to hear from you.

© Raymond Smith, The Long Term Care Specialist, 2010