Qualifying for Medicaid for care in a nursing home can be an ordeal. First, there are strict asset limits – $2,000 for a single person and an amount between $23,844 and $119,220 for a couple, if one spouse is not in long-term care. Second, the gauntlet an applicant or the applicant’s representative must run can be grueling and hazardous because the Medicaid agency is likely to flyspeck the last five years’ financial transactions in relentless pursuit of gifts. Finally, much of the “information” about Medicaid qualifications offered to the public is false or misleading. Michigan recently initiated a program to allow Medicaid applicants keep more assets if they purchase certain long-term care insurance (LTCI) policies, but the Department of Health and Human Services totally screwed up what could otherwise be a good idea.
Here is how the Medicaid policy manual describes the program:
Long term care insurance partnership policies are health insurance and are not countable as assets. However, there are special asset rules for individuals who use long term care insurance partnership policies to pay for long term care.
At the initial eligibility determination there is an asset disregard (starting with countable assets first) equal to the amount that the long term care policy has paid to, or on the behalf of, the applicant. The asset disregard can increase at redetermination or case closure. The countable asset limit for Extended Care category remains the same. Assets of any type can receive the disregard. These disregarded assets are also disregarded (protected from) estate recovery.
BEM 400, at 45 (July 1, 2016).
A more-extensive explanation of the Partnership was published in December 2015. According to the “Partnership Program Notice,” a Partnership Program insurance policy must:
● Be issued to an individual after December 31, 2007;
● Cover an individual who was a resident of Michigan when coverage first becomes
effective under the insurance policy;
● Be tax-qualified under Section 7702(B)(b) of the Internal Revenue Code of 1986;Meet prescribed consumer protection standards, and
● Provide the following inflation protections:
• For ages 60 and younger – provide compound annual inflation protection,
• For ages 61 through 75 – provide some level of inflation protection,
• For ages 76 and older – inflation protection may be offered but is not required.
Furthermore, the Department warns that “changes to the insurance policy may disqualify you as eligible for the Partnership Program” policies, that the policies are generally not portable from state to state, and that changes in the law could eliminate the asset protection the policy affords with regard to Medicaid.
What we have here is a specialized LTCI product with a substancial cost that may become worthless if the purchaser tries to make a change in the terms of the policy or moves to a different state, or if they change the law. This is like selling expensive computers that become junk if the purchaser tries to make a change to the operating system, while the producer of the operating system is allowed to introduce upgrades that render current hardware obsolete. Wouldn’t that be ridiculous?
Assume that the potential Medicaid applicant purchases an LTCI Partnership policy, and does not move out of state or try to change the policy, and the State does not change the law. This type of insurance is still of extremely limited utility unless the consumer can afford a benefit level that covers the entire cost of long-term care.
Consider this statement, “At the initial eligibility determination there is an asset disregard (starting with countable assets first) equal to the amount that the long term care policy has paid to, or on the behalf of, the applicant.” What this means is that when the person applies for Medicaid, the increase in allowable assets is only for the amount the Partnership policy has already paid for the applicant’s care.
Consumers generally do not purchase LTCI for the full cost of nursing care. That would be too expensive. Nursing care is expected to cost $400 per day in a few years. LTCI with a daily benefit of $400 for any appreciable benefit period would be quite expensive. However, if Merle has such a policy and goes on-claim for two years, the benefits paid would be $292,000 and Merle could be eligible for Medicaid, keeping assets of $294,000.
Burl, in comparison, purchased an LTCI Partnership policy with a $200 per day benefit for two years. If he became a nursing-home resident at $400 per day, he would have to pay $12,167 monthly out of pocket in addition to the LTCI payments. He could not qualify for Medicaid until he had spent down to $2,000 plus the LTCI payments already made on his behalf. His policy would pay out approximately $146,000, but the increase in protected assets would only be $73,000.
Therefore, the purchaser must purchase an LTCI Partnership policy to cover the full expected cost of care for the benefit period. Any policy with a lower benefit level would be of dubious value.
The ink on Michigan’s Partnership Program is barely dry, but at least two LTCI companies are offering policies – Genworth and Mutual of Omaha. Michael McDonnell, at nationalltc.com, provided a proposal that was represented to conform to the Michigan Partnership Program from each of those companies. Insurance of this kind should be considered in estate planning, but the value of a Partnership policy with regard to Medicaid asset preservation can only be gauged with the assistance of an attorney who is knowledgeable about Medicaid qualification.
John B. Payne, Attorney
Garrison LawHouse, PC
Dearborn, Michigan 313.563.4900
Pittsburgh, Pennsylvania 800.220.7200
©2016 John B. Payne, Attorney