This is the third in a series of articles on the financing of long-term care (LTC).
We are now turning our attention to purchasing insurance for LTC, and New York State’s “partnership” involvement in some LTC insurance contracts.
New York State is very interested in encouraging its residents to purchase Long-Term Care insurance. The reason for this is that NYS is currently paying a significant portion of its Medicaid budget for the long-term care costs of NY residents. If more New Yorkers had LTC insurance, the reasoning goes, there would be less reliance on Medicaid dollars to pay for LTC costs. As a result, NY has created the Partnership for Long-Term Care, which encourages the purchase of LTC insurance under the partnership program. Basically, a partnership LTC insurance policy has two payment periods: the initial period in which the insurance company pays up to the limits of the policy, followed by a period in which Medicaid pays part of the long-term care costs of the policy’s beneficiary. More on this later, but first we need to review some LTC insurance basics.
Long-Term Care Insurance
Like any other insurance contract, an LTC insurance policy can have a wide variation in its provisions and coverage. Most of the LTC insurance policies we have seen pay a daily rate for nursing home charges and lesser amounts for assisted living facilities and for home-based care. The period of coverage varies, with policies for 2, 3 or 4 years being common.
Other potential areas of coverage include respite care, hospice care, inflation protection (important in any future benefits contract), care management services, and renewal guarantees, among others. For example, a policy may be written to provide benefits for three years at a daily rate of $300 for nursing home charges and $150/day for home-based care.
There is usually an elimination period at the beginning of admittance to a long-term care facility, typically either 90 or 100 days. During this initial period, the LTC insurance policy does not pay for LTC costs; however, it is possible, but by no means certain, that Medicare will pay for costs during this initial period.
What about costs over the daily rate, and costs after the period covered by the policy? These are the responsibility of the patient and/or the patient’s family. The insurance policy is normally designed to cover the bulk of the LTC costs during the period it covers, but is not designed to provide any coverage beyond the policy period. The policy’s term is LIMITED and provides resources only for the period covered by the policy. When the policy period ends, the benefit payments stop.
One other factor to keep in mind is that you have to meet certain criteria for benefit payments to begin. The policies usually define a person’s qualification for payments to start in reference to their ability to handle the basic daily tasks of living. These are what insurers call “benefit triggers”, and in the case of LTC insurance they are usually tied either to your inability to do some of the “activities of daily living” without hands-on assistance, or to the need for substantial supervision to be protected from threats to health and safety due to severe cognitive impairment.
The activities of daily living (ADL) are usually listed as bathing, continence, dressing, eating, toileting and transferring. One of the benefit triggers in an LTC policy is the inability to perform two of the six ADLs. If you are judged to be unable to do two of the ADLs without hands-on help, the LTC policy will begin making payments according to the terms of the policy.
The New York State Partnership for Long-Term Care
The NYS Partnership for LTC is a program that combines private insurance with Medicaid Extended Coverage. The key to understanding the Partnership is to note that it is an LTC insurance contract, sold by select insurance companies, and is designed to start with benefits paid by the insurance company with NYS providing some benefits once the private insurance has been exhausted. There are actually two benefit periods: payments at a daily rate up to the maximum allowed by the private insurance for the term of the policy, to be followed by payments from Medicaid Extended Coverage when the private insurance runs out.
The private insurance portion of the contract is similar to that described above for other LTC policies. The Medicaid Extended Coverage is different from “regular” Medicaid in that it allows you to protect some of your assets, while receiving benefits from NYS. The idea is for you to be able to protect assets, receive private insurance payments for a number of years, and then receive payments from NYS for the remainder of the time spent in the nursing home.
The amount of coverage and the period of coverage will be detailed in the policy you choose. To see the impact, let’s assume that you purchased a Partnership policy with three years of private insurance coverage, followed by Medicaid Extended Coverage. Subsequently, you lived in a nursing home for seven years. For the first three years you would receive, say, $300 per day from the insurance company (or $328,500. over 3 yrs.), and then you would receive, say, $190 per day (or $277,400. over 4 yrs.) from NYS for the final four year period to help pay for the nursing home.
Two caveats with regard to the Medicaid Extended Coverage part of the Partnership program: First, you will be required to use your income (but not your assets) to pay for your care under the Medicaid income rules before Medicaid Extended Coverage starts to pay. This normally does not restrict your benefits unless your income is high enough to pay for most or all of your long-term care. Secondly, Medicaid Extended Coverage payments are restricted to New York residents. This means that you would have to be a resident of New York during the Medicaid Extended Coverage period to receive benefits. Thus, the Partnership program is probably not a good choice for you if you plan to relocate from NY with no intention of returning to residency in the future. By the way, this restriction has no impact on the benefits available under the private insurance portion of the Partnership contract. The private insurance benefits are available no matter where you reside.
The New York State Partnership for Long-Term Care is a good option for financing long-term care costs for New York residents who are looking at LTC insurance. It should be one of the financing options considered by New York residents planning for their future long-term care.
Read first two article in series on long term care by John J. Patrick: The Dilemma of Paying for Long Term Care Costs, and Tax Aspects of Long-Term Care.
John J. Patrick, CPA is a partner in the tax practice at Grossman St. Amour CPAs. John provides income tax return preparation and tax planning services to individuals and businesses. He can be reached at firstname.lastname@example.org, or (315)701-6455.