Archive for June, 2012

Update: The Colorado Long Term Care Partnership

June 26, 2012

What is the Partnership?  It is truly a win-win-win agreement between the citizens of Colorado, the State of Colorado, and participating insurance companies.  Essentially, buying a Colorado Partnership qualified long term care insurance policy allows you to qualify for Medicaid without having to spend down nearly as man of your assets.

Here is how it works: (1) You buy a Colorado Long Term Care Partnership qualified insurance policy.  (2) The policy subsequently pays a benefit.  (3) Every dolar of benefit paid to you adds a dollar to how much net worth you can retain and still qualify for Medicaid.

Example: You develop a need for long term care services.  Assume you are not married and your Partnership qualified policy pays you $500,000 before using up its Pool of Money (Total Benefit Amount).  Now you can qualify for Medicaid while retaining $502,000 in non-exempt assets.  If you did not have the Long Term Care Partnership qualified insurance policy, you would have had to spend down to $2,000 in assets before you could qualify for Medicaid.  Most states now have variations of Long Term Care Partnership.

So why this update?  The Colorado Division of Insurance has issued Amended Regulation 4-4-4, to be effective July 1, 2012.  This new regulation reduces the minimum inflation protection requirements for a Colorado Long Term Care Partnership insurance policy.  The new requirements:

1. For people under the age of 61 on the policy issue date: Must have compound inflation protection in any fixed percentage amount (Some examples: 3.0% compound, 4.0% compound or 5% compound).  Inflation protection tied to annual changes to the Consumer Price Index (CPI) is acceptable.  A guaranteed future purchase option is not OK. 

2. For people ages 61 through 75: Some level of inflation protection.  A guaranteed future purchase option is not acceptable.

3. For people ages 76 and better:  Inflation protection is optional.

The new (7/1/2012 effective date) regulation permits an age-based “step-down” in inflation protection without losing Partnership status.  Example: In 2010, fifty-year-old Alice was issued a long term care insurance policy with 5% compound inflation protection.  The policy is Colorado Long term Care Partnership qualified.  Twelve years later, at age 62, Alice decides to reduce her inflation protection to 3% simple (assuming the insurance company allows the change).   Alice’s policy would remain Colorado Long Term Care Partnership qualified.  

The pre-July 1, 2012 requirements are:

1. Under age 61: At least 5% compound or annual changes in the CPI.

2. Ages 61 through 75: A minimum of 3% compound, or 5% simple, or annual changes in the CPI.

3. Ages 76 or better: Optional.

4. Inflation protection step-down would result in loss of Partnership qualification.  An exception was made for those John Hancock Life Insurance Company policyholders who recently elected a reduced compound inflation benefit.

Why are these changes good for consumers?  Because Long Term Care Partnership is good and theses changes make it possible for a Partnership qualified policy to be much more affordable (3% compound inflation protection is significantly less expensive than 5% compound.).  If policy benefits (to include inflation protection) are the same, a Partnership policy costs exactly the same as a non-Partnership policy.  Partnership provides the added benefit of being able to qualify for Medicaid while retaining more assets.

Important notes: 1. Medicaid eligibility rules are very complicated.  I have simplified my explanation for purposes of understanding the concept.  Please consult with a qualified elder law attorney for any specific Medicaid eligibility questions.  Let me know if you need a referral.  I can help.  2. Long term care policies issued before January 1, 2008 cannot be Colorado Partnership qualifed…with no exceptions permitted.  That includes my own policy issued in 2001.  3. I have addressed only highlights of the ammended regulation 4-4-4.  The actual regulation can be seen at the Colorado Division of insurance website, www.dora.state.co.us/insurance/.

 

Disclaimer: Actual policy language, rather than the contents of this eNewsletter always takes precedence.  Long term care insurance policies vary from company to company & within the same company.  Raymond Smith, The Long Term Care Specialist, does not give legal or tax advice.  Consult your tax advisor or attorney for these matters.

 

© Raymond Smith, The Long Term Care Specialist, 2012