Medicaids Long-Term Care Insurance Partnership Program
CRS Report for Congress
Medicaid’s Long-Term Care Insurance
Updated January 21, 2005
Specialist in Social Legislation
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress
Medicaid’s Long-Term Care Insurance
Under Medicaid’s long-term care (LTC) insurance partnership program, persons
who have exhausted (or used at least some of) the benefits of a private long-term care
insurance policy may access Medicaid without having to meet the same means-testing
requirements as other groups of Medicaid eligibles. Currently, Medicaid law allows four
states (California, Connecticut, Indiana, and New York) to operate partnership programs.
These states disregard some or all the assets of applicants who apply to Medicaid after
exhausting their private benefits and exempt these assets from estate recovery after the
beneficiary has died. Only persons who purchase pre-approved LTC insurance policies
meeting state-defined requirements may participate. The partnership program is intended
to encourage persons to purchase LTC insurance who would not otherwise do so, reduce
incentives for person to transfer assets to qualify for Medicaid sooner than they otherwise
would, and contain Medicaid spending on long-term care services.
According to data provided to CRS by the partnership states, about 181,600
partnership policies (private LTC insurance policies approved by the state to qualify
for asset protection should an individual require Medicaid) have been sold. Of all
purchasers, 88 persons, or 0.5%, have received Medicaid coverage for their LTC
needs. A total of $2.8 million in assets have been protected for persons in California,
Connecticut, and Indiana who have qualified for Medicaid. It is unknown how many
persons with policies still in-force will eventually qualify for Medicaid.
The majority of partnership policies purchased offer comprehensive benefits that
include coverage of nursing home stays and home care. All of the partnership states
require that policies be protected against inflation for at least some of its purchasers.
Surveys conducted in California and Connecticut show that almost half of
partnership purchasers have assets of greater than $350,000 and a survey conducted
in Indiana shows that 60% of purchasers have assets of greater than that level
(excluding the home). In contrast, an average of 20% of purchasers in California and
Connecticut have assets of less than $100,000 (excluding the home). In New York,
In response to state interest, Congressional proposals were introduced in the
108th Congress that would have allowed states the option of expanding the LTC
insurance partnership program from a four-state model to a nationwide program. The
Presidents’ fiscal year (2004 and 2005) budgets also included similar proposals.
Debate about the partnership program is likely to be continued in the 109th Congress.
This report provides a summary of the experiences of the four states in
implementing the partnership program, including data and analysis of participation,
policies purchased, and the market for LTC insurance. It also attempts to evaluate the
extent to which the asset protection promised under the partnership program is
sufficient and necessary to encourage more persons to purchase LTC insurance, and
discusses other key issues raised by policymakers and stakeholders concerning the
expansion of the partnership program to the national level. Legislative proposals are
In troduction ......................................................1
Summary of Findings...............................................4
Partnership Purchasers and Policies Sold...........................4
State Program Models......................................4
Features of Policies Sold....................................5
The Market for LTC Insurance: Market Stability.................6
The Market for LTC Insurance: Regulation and Quality...........6
The Market for LTC Insurance: Other Issues....................6
The Partnership Program’s Interaction with Medicaid.................6
Summary of Four States’ Experience..................................7
State Program Models..........................................7
Dollar-for-Dollar Asset Protection............................7
Features of Policies Sold.......................................15
Length of Coverage.......................................15
The Market for LTC Insurance..................................20
Predictability of Future Claims..............................21
Regulation of the LTC Insurance Market......................21
Affordability of Premiums..................................23
The Suitability of Products Purchased.........................25
The Partnership Program’s Interaction with Medicaid................26
Equity within the Medicaid Program..........................26
The Role of Asset Protection................................27
Reciprocity between and among States for Partnership Policies.....30
List of Tables
Table 1. Participation in Long-Term Care Insurance Partnership Program....11
Table 2. Income and Assets at Time of Purchase (Purchaser Surveys Conducted by
Table 3. Demographics of Partnership Plan Buyers (at time of purchase).....14
Table 4. Features of Partnership Policies Purchased.....................17
Table 5. Average Annual Premiums for Top Long-Term Care Insurance Sellers in
Medicaid’s Long-Term Care Insurance
In 1988, Alice Rivlin and Joshua Wiener authored a study titled Caring for the
Disabled Elderly: Who Will Pay?1 Among other things, the study outlined a theory
about the potential for the public sector to aid private markets in assuming a larger
role in the financing of long-term care (LTC). At the same time, California,
Connecticut, Indiana, and Massachusetts had begun addressing this issue at the state
level. Shortly thereafter, the Robert Wood Johnson Foundation gave seed money to
some states to develop programs that would integrate public-private partnerships in
long-term care financing. The planning grants resulted in the development of long-
term care insurance partnership programs that would allow persons who purchase
long-term care insurance2 to qualify for Medicaid3 coverage of long-term care
services without meeting the same asset requirements that other Medicaid applicants
Implementation of the program, however, required a significant change in
federal Medicaid rules. Connecticut was the first state to seek and gain approval
(under §1902 authority of the Social Security Act) from the Centers for Medicare and
Medicaid Services (CMS, at the time, the Health Care Financing Administration) to
amend their Medicaid state plans to disregard some or all of the assets of persons
1 Washington, DC: Brookings Institution Press, 1988.
2 This insurance product provides persons needing assistance with long-term care with
protection against the high cost of long-term care services without relying on public sector
programs such as Medicaid. Care in a variety of settings may be covered, including nursing
facilities, assisted living facilities, or the individual’s own home through home health,
respite care for caregivers, homemaker and chore services, among others. LTC policies vary
with regard to features. These include criteria to qualify for benefits; a waiting
(“elimination”) period between the onset of qualifying impairments and commencement of
payment; dollar limits on payments and possible inflation adjustments of the limits; whether
payments are a flat daily amount regardless of expenses or are paid only as reimbursement
for approved expenditures; and the length of time over which benefits may be paid (such as
one year, three years, or longer).
3 For background and statistical information about the Medicaid program, see CRS Report
RL32277, How Medicaid Works: Program Basics, by Elicia Herz, Jean Hearne, Julie Stone,
Karen Tritz, Evelyne Baumrucker, Christine Scott, Chris Peterson and Richard Rimkunas.
who purchase long-term care insurance policies.4 Political debate about the
advantages and disadvantages of this partnership program, however, resulted in
significant opposition to the use of public funds to support investment in the private
market for insurance. As a result, Congress included in the Omnibus Budget
Reconciliation Act of 1993 (P.L. 103-66) a provision limiting approval of Medicaid
exemptions for estate recovery5 to only those states with approved state plan
amendments as of May 14, 1993.6 By that date, five states (California, Connecticut,
Indiana, Iowa, and New York) had received CMS approval. All of these states,
except Iowa, have implemented partnership programs. These four states received
assistance from the Robert Wood Johnson (RWJ) Foundation to help design, market,
and operate what became known as the LTC insurance partnership programs.
Under Medicaid’s LTC insurance partnership program, states with approved
§1902(r)(2) plan amendments may extend Medicaid coverage, including long-term
care benefits (i.e. nursing home and home and community-based services) to certain
persons who have purchased private LTC insurance policies without requiring them
to meet the same means-testing requirements applicable to other groups of Medicaid
eligibles. During the eligibility determination for Medicaid, these states may
disregard either a portion, or all assets, of the Medicaid applicants to the extent that
payments have been made under a LTC insurance policy or because an individual has
received (or is entitled to receive) benefits under a LTC insurance policy. Upon the
death of the beneficiary, the statute also allows these states to exempt either some or
all of the individual’s assets from Medicaid estate recovery. The grant agreement
negotiations with RWJ included a number of additional requirements that have
significantly contributed to the current design of the partnership program model.
These include minimum criteria which LTC insurance policies must meet to qualify
as “partnership policies.” States also review and approve each of these policies before
they become available on the market. Under the program, participants must still meet
certain income and functional eligibility requirements to qualify for Medicaid.
4 To qualify for Medicaid, applicants’ income and resources must be within certain limits.
The specific income and resource limitations that apply to each eligibility group are set
through a combination of federal parameters and state definitions. Consequently, those
standards vary considerably among states, and different standards apply to different
population groups within a state. For many of those groups, states may seek permission
under a special provision, Section 1902(r)(2), to use more liberal standards for computing
income and resources than are specified within each of the groups’ definitions. Under the
partnership program, Section 1902(r)(2) is used to ignore or disregard certain amounts of
assets, thereby extending Medicaid to individuals with earnings or assets too high to
otherwise qualify under the specified rules for that eligibility pathway.
5 The Omnibus Budget Reconciliation Act of 1993 (OBRA 1993) amended Medicaid law
to require that all 50 states and DC seek adjustment or recovery from the individual’s estate
for medical assistance provided to persons age 55 or older. Mandatory recovery or
adjustment is limited to Medicaid payments for nursing facility services, home and
community-based services and related hospital and prescription drug services. In addition,
states are given the option of recovering funds spent on additional items or services covered
under the state’s Medicaid plan. The OBRA1993 provision was part of a larger effort by
Congress to assure that a person’s assets are applied to the cost of care when Medicaid
becomes a payer of that care.
6 §1917(b)(1)(C) of the Social Security Act.
Through the promise of Medicaid asset protection, the partnership program is
designed to encourage people to purchase private LTC insurance when they might
not otherwise do so. It is also intended to incur savings both to Medicaid, by
delaying or preventing spend-down to Medicaid eligibility, and to individuals, by
having them rely on insurance policies to cover LTC expenditures that would
otherwise be paid by personal income and savings. The person’s protected assets are
generally used by the individual to maintain a certain living standard, to pay for care
not covered by Medicaid, or to pass on as inheritance to their heirs.
States have used different models for protecting the assets of eligible
participants. Connecticut and California adopted a dollar-for-dollar model, in which
the amount of the assets protected for a participant is equivalent to the value of the
benefit package paid by the policy purchased (e.g., $100,000 of nursing home or
assisted living coverage enables that individual to retain up to $100,000 in assets and
still qualify for Medicaid coverage in that state). New York uses a total asset
protection model in which persons who purchase certain state-approved policies may
qualify for Medicaid without having to meet any of Medicaid’s asset criteria. Indiana
uses a hybrid model, offering both dollar-for-dollar and total asset protection (Indiana
switched from the dollar-for-dollar model to the hybrid model in 1998).
In recent years, several non-partnership states have expressed interest in
establishing partnership programs and have encouraged Congress to repeal the
provision in §1917 of the Social Security Act that prohibits additional states from
exempting LTC insurance buyers from Medicaid estate recovery requirements.
Further, the National Association of Health Underwriters reports that 17 states have
passed enabling legislation allowing each of these states to establish a partnership
program when and if federal legislation is changed7.
In response to state interest, Congressional proposals were introduced in the
108th Congress that would have allowed states the option of expanding the LTC
insurance partnership program from a four-state model to a nationwide program. The
President’s fiscal years (FY) 2004 and 2005 budgets also included proposals that
would have granted states this flexibility. As a result of this broad interest, debate
about the partnership program is likely to be continued in the 109th Congress. In large
part, disagreement has centered around the following themes:
!the appropriateness of using the Medicaid program — a program
designed to serve persons who are poor or near poor with high
medical expenses — to promote the expansion of the private sector
market for long-term care insurance;
!whether the asset protection promised under the partnership program
is a necessary and sufficient incentive to encourage the purchase of
LTC insurance by persons who would not otherwise purchase it and
7 Kevin P. Corcoran, CAE, Testimony for the United States Senate, Special Committee on
Aging, National Association of Health Underwriters, June 22, 2004, at
[http://agi ng.senate.gov/ _files/hr126kc.pdf].
allow persons to retain large sums of assets in excess of Medicaid
rules that apply to everyone else; and
!whether the program results in Medicaid savings, among others.
To help Congress evaluate these proposals, this report provides a summary of
the experiences of four states — California, Connecticut, Indiana, and New York —
in implementing the partnership program. It also discusses key issues raised by
policymakers, state directors of the LTC insurance partnership programs, and policy
analysts concerning the expansion of the partnership program to the national level.
Summary of Findings
The following section presents data available on the partnership programs and
discusses selected policy issues regarding the partnership programs and the insurance
market in general. This information is based, in part, on the data provided to the
Congressional Research Service (CRS) by the LTC insurance partnership programs
and CRS conversations with the directors of these programs in spring of 2004.
Partnership Purchasers and Policies Sold
State Program Models
!Connecticut and California adopted a dollar-for-dollar model.
!New York uses a total asset protection model, but is in the planning
stages of adding a dollar-for-dollar option.
!Indiana uses a hybrid model, offering dollar-for-dollar and total asset
!The dollar-for-dollar model allows states to approve more affordable
options for lower-income consumers, while total asset protection
encourages states to approve policies that are higher in value and
thus more attractive to persons with higher incomes.
!About 181,600 partnership policies have been sold; 149,300 are still
!About 2,200 persons, or 1.2% of partnership purchasers, have
received private LTC insurance benefits.
!Of all purchasers of partnership policies, 88 persons, or 0.5%, have
received Medicaid coverage of their LTC needs.
!A total of $2.8 million in assets have been protected for persons in
California, Connecticut, and Indiana who have qualified for
!The population of persons age 65 and older living in the Partnership
states totaled 7.8 million in 2000. Data collected by states show that
181,623 Partnership policies have been sold in these states since the
programs’ establishment. Although not all of the persons in this age
category are ideal candidates for LTC insurance, the program has
had limited reach.
!The LTC insurance partnership program was intended to encourage
persons to consider the purchase of LTC insurance as an alternative
for financing their care. It was especially intended to reach persons
with middle and lower level wealth status.
!Surveys conducted of California and Connecticut show that almost
half of partnership purchasers have assets of greater than $350,000
and a survey conducted in Indiana shows that 60% of purchasers
have assets of greater than that level (excluding the home). In
contrast, an average of 20% of purchasers in California and
Connecticut have assets of less than $100,000 (excluding the home).
In New York, 8% of purchasers have assets of less than $50,000 and
!Regarding income, a significant proportion of buyers have monthly
income that exceeds $5,000 in California (58%) and Indiana (43%).
In contrast, more than half of purchasers in Connecticut (57%) have
income less than $2,500.
!Some persons also hoped that Partnership policies would be
attractive to younger buyers as well.
!Although data are significantly limited, a comparison of data that are
available on the partnership states and data on LTC insurance
purchasers in general show that long-term care insurance partnership
purchasers may be slightly younger than purchasers of LTC
insurance in general.
Features of Policies Sold
!The majority of partnership policies purchased offer comprehensive
benefits that include coverage of nursing home stays and home care.
!Many of partnership policies sold in the four states cover three or
more years of coverage (i.e., 64% in California and 94% in Indiana),
whereas 36% of policies sold in California and 20% of policies sold
in Connecticut cover two or fewer years of coverage.
!All of the partnership states require that policies be protected against
inflation for at least some of its purchasers. (This requirement varies
in two states by age of policyholder.)
!Under the grant agreement with RWJ, states established procedures
requiring insurers to seek state approval of partnership policies
before they can be sold in the market.
!The number of insurers selling policies in each of the partnership
states ranges from five companies in California to13 companies in
The Market for LTC Insurance: Market Stability
The restructuring of the LTC insurance market may impact the stability of LTC
products. The following explains some of these market changes:
!In the near future, 90% of the LTC market will be owned by nine
companies, consolidating the nation’s privately-insured risk across
a small number of private sector carriers.
!In recent years, many insurers have applied stricter underwriting
practices and raised premiums to limit their exposure to financial
!Most products are sold through the individual market for insurance.
!Insurer insolvencies and carrier acquisitions may pose risks to
!LTC insurance premiums can be costly and unexpected rate
increases may affect policyholders’ desire and ability to continue
The Market for LTC Insurance: Regulation and Quality
!Federal regulation of LTC insurance is limited to the HIPAA
provisions concerning the tax treatment of qualified LTC insurance
policies; California, Connecticut and New York require that all
partnership policies meet these HIPAA requirements; Indiana
provides consumers the option to purchase either a tax-qualified or
non-qualified partnership policy.
!Significant variation exists in the regulation of LTC insurance across
!Many states have limited abilities to monitor problems and trends in
!Although many insurers strongly oppose stricter federal
requirements on all LTC insurance products, some support the
adoption of standardized requirements for partnership policies at the
The Market for LTC Insurance: Other Issues
!Limited claims experience combined with complex risk factors make
it difficult for insurers to predict future claims.
!As a result of underwriting factors, not all persons who can afford
LTC insurance can obtain it, even if they apply.
The Partnership Program’s Interaction with Medicaid
!Providing asset protection to a select group of Medicaid
beneficiaries raises equity considerations by treating one group of
Medicaid applicants differently from other groups of applicants.
!Limited empirical data are available to demonstrate whether the
asset protection promised under the partnership program is a
sufficient and necessary incentive to encourage the purchase of
policies by persons who would not otherwise purchase them; as a
result, asset protection under Medicaid may be extended to some
persons who would otherwise never seek Medicaid eligibility to
!Based on the available data, it is reasonable to conclude that for
some, the promise of Medicaid asset protection plays a significant
role in the decision to purchase a partnership policy, while for others
it plays a smaller role.
!LTC insurance likely prevents spend-down to Medicaid eligibility
for some persons, delays it for others, and has little impact on still
!A number of states are likely to support a standard reciprocity
agreement across states, while some may have reason to oppose it.
Summary of Four States’ Experience
The following section describes the asset protection models used by each of the
four partnership programs. It also provides a summary of participation data for
partnership policies sold thus far and describes the general features of those policies.
Finally, a list of those insurers who sell partnership policies in each of the four states
State Program Models
Under the RWJ grant agreement, the partnership states developed three models
for protecting the assets of LTC insurance purchasers. The following is a brief
description of these models:
!Dollar-for-Dollar Asset Protection. Under this model, the
maximum amount of assets (such as savings, stocks, investment
property) that may be disregarded during Medicaid’s eligibility
assessment and that are not subject to estate recovery is equivalent
to the total value of benefits paid by the policy purchased. In
Connecticut, for example, the minimum daily benefit that can be
sold is $144 per day of coverage. Thus, a one-year policy could pay
out $52,560 ($144 x 365 days) for an equivalent of $52,560 in asset
protection. The minimum two-year policy would provide asset
protection of at least $105,120, and a minimum three-year policy
would provide asset protection of $157,680. For inflation-protected
policies, the value of the benefits and thus the amount of assets
protected grow annually. For example, a policy that pays $150 per
day of coverage would pay $54,750 for one year if the payout began
next week, but $297 per day at 5% annual compounded inflation
adjustment (or $108,401 for one year of coverage) if the payout
began 14 years from now. Under this scenario, a one-year policy
would result in a disregard of up to $108,401 of the participant’s
assets during the Medicaid eligibility determination as well as an
exemption from estate recovery of this amount after the participant’s
!Total-Asset Protection. Under this model, participation is
limited to persons who purchase state-approved LTC policies with
a minimum benefit package defined by the state. For example, to
have all one’s assets disregarded in New York, participants must
exhaust the benefits from a policy that covers at least three years of
nursing home coverage and/or six years of home care coverage
where the amount of coverage for two days of home care is
equivalent to the amount of coverage for one day of nursing home
care. Persons who purchase such policies may qualify for asset
protection under Medicaid after private insurance benefits are
exhausted and when they meet Medicaid’s income and functional
eligibility criteria. They are not subject to any of Medicaid’s asset
!Hybrid Model. Under this model, the amount of asset
protection obtained depends on the value of the benefits exhausted.
In Indiana, for example, to qualify for total asset protection
participants must exhaust a policy that covers about 4.2 years of
nursing home care. In Indiana, this is equivalent to coverage of at
least $187,613 of care for any setting. This minimum criteria is
updated annually according to Indiana’s average daily nursing home
rate ($121 in 2004) and adjusted for inflation. Any policy of benefit
value below this amount would provide a participant with dollar-for-
dollar asset protection.8
According to some state directors of the partnership programs, the dollar-for-
dollar asset protection model allows the state to approve smaller policies that can be
more affordable for persons with less wealth. Providing a range of options to
consumers with fewer savings (e.g., smaller policies for less asset protection and
larger policies for more asset protection), they assert, makes it easier for persons to
purchase LTC insurance and makes asset protection accessible to a broader
population. It also, according to state directors, helps delay or prevent additional
persons from spending down to Medicaid eligibility. According to New York’s state
director, the fact that total asset protection is tied to larger policies (i.e., three years
of nursing home care or six years of home care) tends to make them more expensive.
He argues, therefore, that this model restricts access to those persons with higher
income levels and assets who can afford more comprehensive policies. In hopes of
expanding access to the partnership program to persons with less wealth, New York
is currently considering expanding its total asset protection model to a hybrid model
8 Under Indiana’s hybrid model, 75% of its 31,042 policies purchased have earned total asset
protection, while 25% earned dollar-for-dollar protection. See Indiana’s partnership
program, June 2004.
so that persons who purchase fewer than three years of coverage could obtain dollar-
for-dollar asset protection.
Most partnership participants who obtain asset protection under Medicaid
exhaust their private LTC insurance benefits before qualifying for Medicaid. These
persons generally obtain the full asset protection allowed by the policy, or obtain total
asset protection (if applicable). However, persons may qualify for Medicaid before
exhausting their private benefits in California, Connecticut, and Indiana and still
obtain some asset protection, although less than they would have if they had
exhausted their entire LTC insurance policy. Persons who apply for Medicaid before
exhausting their LTC insurance policies must spend-down to Medicaid income
eligibility thresholds and meet the functional eligibility requirements in that state.
The amount of asset protection they can obtain is equivalent to the value of private
benefits paid out at the point in time in which Medicaid eligibility is established. For
this group, Medicaid would cover services not covered by the long-term care
insurance policy (possibly adult day care, certain adaptive technologies, certain
mental health services, etc.) and the policy would continue to pay benefits until they
Under a mutual agreement, the four partnership states maintain quarterly records
of program participation, including counts of policies sold, counts of policies in-
force, number of persons triggering private benefits, and the amount of assets
protected under the program. These data are provided to the states by the insurers
that sell partnership policies. The states also track the number of partnership
participants that qualify for Medicaid (see Table 1).
Since the program’s establishment in the early 1990s,181,623 partnership
policies have been sold. About 2,200 persons, or 1.2% of purchasers, have qualified
for private benefits thus far. Furthermore, of all partnership purchasers to date, 88
have qualified for Medicaid coverage, constituting .05% of total purchasers. About
82% of policies sold, or 149,300 policies, are currently in-force (Table 1). It is
unknown how many of these persons with policies still in-force will eventually
qualify for Medicaid.
A total of $2.8 million in assets have been protected for persons who have
qualified for Medicaid in California, Connecticut, and Indiana (Table 1). Such
persons might have qualified after exhausting their private benefits and spending
down to Medicaid eligibility thresholds, or they may have become eligible for
Medicaid while receiving private benefits. For persons who qualify for Medicaid
while receiving benefits from a LTC insurance policy, Medicaid covers only those
services not covered by either the policy or Medicare (possibly adult day care, certain
adaptive technologies, certain mental health services, etc.). The insurance policy
continues to pay benefits until it is exhausted.
According to the most recent data available, $7 million has been protected in
three states by persons who did not qualify for Medicaid before death. Data on the
amount of assets protected in New York are not available since the state does not
collect such information because all assets of individuals are protected for persons
buying partnership policies (Table 1).
Table 1. Participation in Long-Term Care Insurance Partnership Program
Persons whoPercent of
Partnershipeverpersons whoAssets protected
policies everPolicies in-receive(d)received LTCTotal count ofPercent ofAssets protectedfor persons Who
purchased (sinceforce (basedLTCbenefits whopurchaserspurchasersfor persons whodied before
program’son mostinsurancepurchased awho receivedwho receivedreceivedaaccessingb
Stateestablishment)recent data)benefits policyMedicaidMedicaidMedicaidMedicaid
(as of63,98454,6328381.3%210.03%$1.1 million$3 million
(as of33,06826,9382790.8%160.05%$1.1 millionc$2.5 million
iki/CRS-RL32610 of 3/04)31,04225,9981870.6%130.04%$0.646 million$1.5 million
g/wfamount notamount not
s.or53,52941,732 8961.7%38 0.07%knowndknownd
Average:$2.8 million (for$7 million (for
://wikital181,623149,3002,200Average: 1.2%880.05%three states)three states)
: CRS survey of states, May and June 2004. Data provided to states by the insurers of partnership policies.
he amount of assets protected by persons who purchased partnership policies and received Medicaid.
otal asset protection earned that will NOT be accessed due to policyholders demise while receiving the benefit.
otal Medicaid asset protection earned by policyholders who have accessed Medicaid or have applications pending per official notice from CT’s Medicaid office.
der NY’s total asset protection model, all assets are protected.
Target Populations. Combined, the population of persons age 65 and older
residing in California (3.8 million), Connecticut (.5 million), New York (2.5 million)9
and Indiana (0.8 million) was 7.6 million in 2000. Although many of these
individuals are not ideal candidates for the purchase of LTC insurance, either because
they have too little or too much wealth, just a small percent (2.4%) have purchased
Partnership policies. According to the most recent data available, only 181,623
Partnership policies have ever been sold in these states. Although more than 10 years
have passed since the Partnership program’s inception, the program is still small and
has had limited reach.
The LTC insurance partnership program was intended to encourage the purchase
of LTC insurance in general, and especially among persons with middle and lower
level wealth status. Some persons also hoped that Partnership policies would be
attractive to a younger population as well. Although some data are available
demonstrating the asset levels and age levels of partnership policy buyers at the time
of purchase, the small sample size of the surveys limits the ability to generalize from
these data. Without more information, it may be difficult to determine the extent to
which the partnership program is reaching the intended populations in the four states.
Income and Assets of Purchasers. Surveys conducted by three
partnership states provide some data on the income and asset levels of buyers at the
time they purchased partnership policies. Data show that almost half of partnership
purchasers in California and Connecticut have assets, excluding the home, of greater
than $350,000 (46% and 48% respectively) and 60% of purchasers in Indiana also
have assets of greater than this level. Many purchasers also have assets of greater
than $100,000 (79% in California, 82% in Connecticut). In contrast, an average of
20% of purchasers in California and Connecticut have assets of less than $100,000
(excluding the home). In New York, .8% of purchasers have assets of less than
$50,000 and 13% have between $50,000 and $200,000.
Regarding income, a significant proportion of buyers have monthly income that
exceeds $5,000 in California (58%) and Indiana (43%). In contrast, more than half
of purchasers in Connecticut (57%) have income less than $2,500. According to
these data, Connecticut has had the greatest success in encouraging persons with
lower income to purchase partnership policies. In Indiana, 17% of purchasers had
monthly income less than $3,000, 34.5% had monthly income between $3,000 and
$5,000, and 43% had income of greater than $5,000 (Table 2).10
9 U.S. Census Bureau: State and County QuickFacts. Data derived from Population
Estimates, 2000 Census of Population and Housing, 1990 Census of Population and
Housing, Small Area Income and Poverty Estimates, County Business Patterns, 1997
Economic Census, Minority- and Women-Owned Business, Building Permits, Consolidated
Federal Funds Report, 1997 Census of Governments.
10 NY has not conducted a purchaser survey since 1995. The state is therefore not included
in Table 3.
Survey data by America’s Health Insurance Plans (AHIP) includes demographic
information of 2,728 LTC insurance purchasers from 12 companies in 2000.11 The
AHIP surveys shows a similar trend for other long-term care insurance buyers, with
71% of respondents reporting liquid assets (excluding the home) of $100,000 or
greater and 29% of respondents reporting liquid assets of less than this amount. In
addition, many survey respondents (42%) reported monthly income of greater than
$4,167 ($50,000 per year), with 17% of respondents reporting having income at or
below $25,000 ($2,083 per month).12 The AHIP survey is not nationally
Table 2. Income and Assets at Time of Purchase
(Purchaser Surveys Conducted by States)
StateAverage monthly household incomeTotal assets (excluding home)
CALess than $2,000: 5%Less than $100,000: 21%
n = 629$2,000-$5,000: 37%$100,00-$350,000: 33%
Greater than $5,000: 58%Greater than $350,000: 46%
CTLess than $2,500: 57%Less than 100,000: 19%
n = 699$2,500-$5,000: 14%$100,00-$199,999: 17%
Greater than $5,000: 14%$200,000-$350,000: 17%
Greater than $350,000:48%
INLess than $3,000: 17%Less than 50,000: 0.8%
n = 576$3,000-$5,000: 34.5%$50,000-$199,999: 13%
Greater than $5,000: 43%$200,000-$350,000: 21%
Unknown: 5.5%Greater than 350,000: 60%
Unknown: 5.2% (Own home: 94%)
Sources: Purchaser Survey 2002, California Department of Health Services, California Partnership
for Long Term Care: Annual Report, Oct. 2003; Annual Report for The Connecticut Partnership for
Long-Term Care Research: Evaluation Studies. July 1, 2001-June 30, 2003. Issued Oct. 2003; and
Indiana Purchaser Survey 2002 of 576 respondents.
Note: Variations in data reported reflect differences in the way each state collects and reports data.
NY has not conducted a purchaser survey since 1995 and is thus not included in this table.
Without a larger sample size of partnership purchasers, it is still difficult to
know the extent to which the program has been successful in reaching persons with
middle- and lower-wealth status. However, it is logical to assume that the amount
of insurance an individual purchases is at least, in part, related to the amount of
financial protection a consumer needs. Under this assumption, lower-priced policies
(e.g., one-year and two-year policies) would more likely be purchased by persons
with fewer assets to protect, while larger policies (e.g., three-year, four-year, five-
year or lifetime policies) would more likely be bought by persons with more assets
to protect. As discussed earlier, the majority of partnership policies sold in all four
11 Health Insurance Association of America by LifePlans, Inc., “Who Buys Long-Term Care
Insurance in 2000? A Decade of Study of Buyers and Nonbuyers,.” Washington, DC, Oct.
states cover three or more years of coverage and 20% of policies sold in California
and Connecticut cover two or fewer years of coverage. In addition, 80% of buyers
in Indiana purchased coverage of five or more years.
Age of Purchasers. Encouraging the purchase of younger buyers would both
broaden the risk pool for insurers and help make prices more affordable for
consumers. A comparison of data on the partnership states and data on LTC
insurance purchasers in general shows that partnership purchasers may be slightly
younger than purchasers of LTC insurance. Table 3 presents demographic data on
partnership purchasers at their time of purchase. Data were provided to CRS by the
four partnership states. The four states used two units of measurement to report the
age of partnership purchasers, median age and average age. The median age of
purchasers in California is 61, with 71% of purchasers between the ages of 54 and
74. In New York, the median age is 64. The average age of purchasers in
Connecticut and Indiana is 58 and 62 respectively.13 According to information
provided to CRS by the state director of Indiana’s partnership program, 53% of all
purchasers bought at age 65 or younger. The AHIP survey shows that the average
age of these purchasers was 67.
Data reported on the gender and marital status of partnership policies are
consistent with data reported by AHIP. More than half of partnership purchasers
included in the AHIP survey are female and more than two-thirds are married.
Table 3. Demographics of Partnership Plan Buyers
(at time of purchase)
CAMedian Age: 61Female: 59%Married: 69%
(as of 12/03) — Ages 55-74: 71%Male: 41%Not Married: 30%
— Other ages: 29%Unknown: 1%
CTAverage Age: 58Female: 56%Married: 79%
(as of 12/03)Male: 44%Not Married: 12%
INAverage Age: 62Female: 57%Married: 77%
(as of 3/04)(Age range: 19-90)Male: 43%Not Married: 22%
NYMedian Age: 64Female: 60%Married: 71%
(as of 9/03) — Minimum Age: 19Male: 41%Not Married: 26%
— Maximum Age: 93Unknown: 3%
Sources: Data provided to CRS by partnership states.
Note: Variations in data reported from each state reflect differences in the way each state collects and
13 Two of the states, Indiana and New York, report purchasers of age 19. These purchasers
are likely to be few in number.
Features of Policies Sold
Partnership buyers, like buyers of long-term care insurance in general, have a
number of options to choose from when buying their policies. This discussion
provides a brief summary of the features of policies sold.
Covered Benefits. The majority of partnership policies ever purchased offer
comprehensive benefits that include coverage of nursing home stays and home care.
For example, 94% of policies sold in California, 99% of policies sold in Connecticut,
86% of policies sold in Indiana, and nearly 100% of policies sold in New York, cover
both nursing home care and home care (Table 4).
Length of Coverage. Many partnership policies sold in the four states cover
three or more years of coverage (i.e., 64% in California and 94% in Indiana), whereas
36% of policies sold in California and 20% of policies sold in Connecticut cover two
or fewer years of coverage. In contrast, only 6% of Indiana’s policies sold cover two
or fewer years (Table 4). Under New York’s total asset protection model, all
policies must cover at least three years of nursing home coverage and/or six years of
home care coverage, for which payment for two days of home care must be
equivalent to one day of coverage in a nursing home. (In 2003, minimum nursing
home coverage per day in New York was $163, and minimum home care coverage
per day was $82).
Elimination Periods. The majority of policies sold in California, Indiana and
New York include riders with at least 90-day elimination periods for nursing home
coverage (Table 4). Such elimination periods restrict the first day in which benefit
payments can begin to 90 days (100 days in New York) after an individual meets the
functional eligibility criteria needed to trigger private benefits, meaning that coverage
begins on the 91st day. This feature is intended to increase the product’s affordability
and reflects consumers’ expectation that either Medicare will cover the first 90 days
of needed care if an individual is hospitalized or in a skilled nursing facility and/or
consumers will be able to afford to pay for such care out-of-pocket. In Connecticut,
only 43% of persons purchase policies with a 90-day elimination period in nursing
Non-Forfeiture. Non-forfeiture protection allows policyholders whose
payments lapse to be eligible for coverage with the same or smaller level of benefits,
reduced lifetime maximum amounts, and or shortened benefit periods. Only one
state, California, requires that all policies sold include a non-forfeiture clause. The
majority of policies, 99%, sold in Connecticut and Indiana have no non-forfeiture
protection. In New York, about half have no protection and half have protection that
allows for policyholders to continue coverage with a shortened benefit period (Table
14 Unless the shortened benefit period paid out is equal to or greater than NY’s minimum
total asset protection requirements of three years of nursing home care and/or six years of
home care, an individual who triggers this non-forfeiture clause would not be eligible for
total asset protection.
Inflation Protection. All of the partnership states require that partnership
policies be protected for inflation for at least some of its purchasers (Table 4). To
be approved as partnership-qualified, Connecticut and Indiana require that all
partnership policies be protected for inflation for all purchasers. California, however,
requires that only those policies sold to persons age 70 and younger be protected
against inflation, and New York requires that only policies sold to persons age 80 and
younger be protected against inflation.
Policy Type. Most policies sold in the partnership states are sold through the
individual market (Table 4). Directors of partnership programs speculate that the
group market, particularly the employment-based market, will expand in future years.
Table 4. Features of Partnership Policies Purchased
Covered benefitscoverageElimination periodforfeitureInflation protectionPolicy type
-% of policies with1-<3 years: 36%(Data from quarter ending 12/03)required5% annual compound inflation100% individual products
ofcomprehensive3-<5 years: 33% 90 days: 72%adjustment required for age 70 and
03benefits: 94%5 years: 4% 60 days: 1%under; companies may offer a 5%
% of policies withLifetime: 27% 30 days: 27%annual simple adjustment to applicants
nursing home 0-15 days: <1%over age 70
-% of policies with1-<2 years: 20%DaysNursing homeHome care99% had no100% of policies include one of threeIndividual: 83%
ofnursing home and2-<4 years: 47%non-state-defined options for inflation
03home care: 99%4-<5 years: 9%9043%40%forfeitureprotectionGroup: 17% (cumulative)
iki/CRS-RL32610% of policies withnursing home5+ years: 8% Lifetime: 16%6008%1%8%23%protection
leak% of policies with1-<3 years: 6%For nursing home:99% had no5% annual compound inflation requiredIndividual: 96%
ofcomprehensive3-<5 years: 14% 90+ days: 59%non-
://wikibenefits: 86%5+ years: 69% 30 days: 20%forfeitureGroup: 1%
http% of policies withLifetime: 11% Other: 21%protection
nursing homeFor home and community-basedOrganization-sponsored:
90+ days: 35%
30 days: 18%
0 days: 38%
Covered benefitscoverageElimination periodforfeitureInflation protectionPolicy type
Almost 100% ofMinimum of100 days: 76%Shortened5% compound inflation required forIndividual: 90%
ofpolicies soldthree years ofbenefitunder age 80;
covered nursingnursing home30-99 days: 12%period: 52%Group: 5%
home care andcoverage and/orAge 80 and above: 77% purchased
home caresix years ofUp to 30 days: 14%None: 48%none and 24% purchased 5%Organization sponsored:
c o ve r a ge
: Data provided to CRS by partnership states.
Comprehensive benefits — includes coverage of nursing home care and home care. Inflation protection — inflates the daily pay out amount and the total value of the policy’s
g/w: NH = nursing home; HC = home care.
Partnership policies must be approved by the state before they can be sold in the
market. This requirement was part of the grant-making agreement between RWJ and
the partnership states. No such requirement is found in the Social Security Act. The
number of insurers selling policies in each of the partnership states ranges from five
companies in California to13 companies in Indiana. The following is a list of
companies that sell state-approved partnership policies in the four participating
!California (five companies). California Bankers Life and Casualty
Company; California Public Employees’ Retirement System
(PERS); GE Capital Assurance (formerly AMEX); John Hancock;
New York Life Insurance Co. (third quarter 2003);
!Connecticut (eight companies). Bankers Life & Casualty; CUNA
Mutual; GE Capital Assurance; John Hancock; MedAmerica;
MetLife; Monumental Life; State Farm (as of 5/04);
!Indiana (13 companies). Bankers Life and Casualty Company;
CNA (Continental Casualty Company); CUNA Mutual Life
Insurance Company; GE Capital Assurance Company; John
Hancock Life Insurance Company; Life Investors Insurance
Company of America; MedAmerica Insurance Company;
Metropolitan Life Insurance Company; Monumental Life Insurance
Company; Mutual of Omaha Insurance Company; Penn Treaty
Network America Insurance Company; State Farm Mutual
Automobile Insurance Company; Transamerica Occidental Life
Insurance Company (as of 3/04); and
!New York (12 companies). American Progressive Life & Health
Insurance Company of N.Y.; CNA Insurance Companies; Conseco
Life Insurance Co. of NY; First Fortis Insurance Company; GE
Capital Life Assurance Co. of NY; John Hancock Life Insurance;
Massachusetts Mutual Life Insurance; MedAmerica Insurance Co.
of NY; Metropolitan Life Insurance; Mutual of Omaha; The
Prudential; TransAmerica Life Insurance Company (as of 1st Quarter
This section discusses several key concerns and questions raised by
policymakers and their staff concerning the expansion of the partnership program to
the national level. To the extent that it is available, data are provided to address to
the relevant policy questions.
The Market for LTC Insurance
Market Stability. In assessing a possible expansion of the partnership
program, some policymakers have expressed significant concern about the stability
of the market and the reliability of products. Current information pertaining to these
issues may be relevant to legislation concerning the partnership program.
The LTC insurance market in general (not limited to the partnership sellers and
products) has undergone significant changes in the past three decades and these
changes have had an impact on policies’ design and prices. In the very earliest years
of the new LTC insurance market in the 1980s, many new carriers entered the market
in search of new revenues. At that time, products were available primarily on an
individual basis and insurers saw large average annual increases in enrollment from
In the1990s, insurers began to offer lower-priced policies designed to squeeze15
competition out of the market and attract buyers. Group policies were offered for
the first time. Fraud also became apparent during this decade with some companies
low-balling premiums (selling policies at inappropriately low rates, then closing
enrollment in that policy, and raising rates for these policyholders), or using loose
underwriting practices (e.g., charging rates that do not cover the known risk factors
of the group, then raising rates after less healthy persons have purchased the policy).16
During this decade, profits for many companies decreased significantly and a number
of carriers began to exit the market.
In recent years, the market’s restructuring has taken a different shape. Now17
carrier consolidation is more prevalent and insurers are using stricter underwriting
practices and raising premiums to try to limit their financial risk. In the near future,
nine companies will hold more than 90% of the LTC insurance market, consolidating
the nation’s privately-insured risk across a small number of private sector carriers.18
For example, the bulk of New York’s LTC insurance sales are with just three
companies (John Hancock, GE Capital Life Assurance Co., and MedAmerica
Insurance Co. of America).
15 The Forbes Consulting Group, Inc.,”Long-Term Care Insurance Thought Leader Report,”
Lexington, MA, Nov. 2003, at [http://www.westlandine.com/ForbesLTC.pdf].
16 Mila Kofman and Lee Thompson, “Consumer Protection and Long-Term Care Insurance:
Predictability of Premiums,” Georgetown University Long-Term Care Financing Project,
17 For example, General Electric Capital acquired LTC insurer Amex Life and the LTC
insurance portfolio of Travelers Life and Annuity; John Hancock acquired Time/John
Alden/Fortis, which was then acquired by Manulife Financial; and Aegon acquired
Transamerica, including its LTC insurance business. Acquisitions of LTC insurance carriers
may allow acquirers to renegotiate certain terms of in-force LTC insurance policies. This
could lead to premium increases in certain states.
18 The Forbes Consulting Group, Inc.,”Long-Term Care Insurance Thought Leader Report,”
Lexington, MA, Nov. 2003, at [http://www.westlandinc.com/ForbesLTC.pdf].
Under this more consolidated market structure, each firm maintains influential
market power and the insolvency of one or more of these firms could lead to market
disruptions and higher premiums. On the other hand, market consolidation could
concentrate LTC policies with the stronger companies and allow these carriers to
spread risk across larger policyholder pools. Consolidation could also lead to
administrative efficiencies, possibly controlling costs and improving claims
processing and other operational expenses. John Hancock, MetLife, Prudential, and
Unum/Provident, for example, have merged their operations supporting group and
individual LTC products.19
One major issue growing out of market consolidation involves carrier
insolvencies and the impact these insolvencies have on policyholders. In recent
years, for example, two of the largest LTC insurance carriers, Conseco and Penn
Treaty, became insolvent. One possible outcome of carrier insolvencies is that
policies of insolvent carriers are transferred to other insurers in the state (a practice
known as assumption reinsurance). Under this scenario, policyholders continue
paying premiums for their LTC insurance policies, yet they pay them to the new
carriers. For these policies, contracts remain intact under the new insurer, but
policyholders could be affected by premium increases.
A second possible outcome of carrier insolvencies poses greater risks to
policyholders. Under this scenario, instead of transferring contracts to another carrier
in the state, policies from the insolvent carrier might be terminated. This could occur
after an insolvent insurer’s assets are liquidated by a state insurance regulator.
Policyholders generally receive compensation for some amount of the policy’s value,
but must reenter the market to obtain a new policy, if they choose to do so. To obtain
a new policy, consumers would again be subjected to underwriting and current
market rates. Given that consumers would have aged since their first policy purchase
and may even have experienced a change in health status, it is possible that they
would find premiums to be higher than they were under their old policies. For some,
the new prices may be unaffordable. Insolvencies in the LTC insurance market raise
concerns about companies that may be growing without sufficient capital.
Predictability of Future Claims. Limited claims experience combined with
complex and changing risk factors makes actuarial predictions of future claims
experience difficult for insurers. For example, over the past decades lapse rates have
decreased from 15-16% to around 2%. Another factor that makes predicting future
claims difficult is the changing designs of the LTC insurance products themselves.
This relatively new product has largely changed from a nursing home only product
from the 1970s and 1980s to a product offering benefits that include nursing home
care as well as home care and assisted living. Fewer claims data are available from
the newer comprehensive policies as many purchasers have not yet submitted claims.
These factors expose insurers to greater risk and encourages them to price products
more rationally and conservatively.
Regulation of the LTC Insurance Market. Some members have expressed
concerns about the regulatory environment for LTC insurance. Some have also
expressed reservations about whether the Medicaid program should be used to
encourage the expansion of the LTC insurance market that is unevenly regulated and
places buyers at risk for premium increases. This section discusses these concerns.
Federal oversight of long-term care insurance is largely limited to provisions
established by the Health Insurance Portability and Accountability Act of 1996
(HIPAA, P.L. 104-191). HIPAA established new rules regarding the tax treatment
of LTC insurance and expenses, and defined the requirements for a tax-qualified LTC
LTC insurance products are largely regulated by states. Every state and the
District of Columbia has some laws governing LTC insurance. Many of these laws
reflect guidance provided by the National Association of Insurance Commissioners
(NAIC), an organization of state insurance regulators. This guidance, provided in the
form of a Model Act and Model Regulations for LTC insurance, addresses a number
of areas, including (1) suitability (standards to help applicants decide whether a
policy is appropriate and affordable); (2) replacement (standards designed to help
applicants decide whether they should replace an old policy with a new one); (3)
prohibition against post-claims underwriting (standards to prevent insurers from
performing underwriting after a policy has been purchased and a claim has been
filed); (4) benefit triggers (standards specifying minimum benefit triggers), among
While many state laws and regulations are based largely on the NAIC standards,
others have adopted only some of these standards.21 A 2002 study by the Lewin
Group (based on a survey of insurance departments of 49 states and the District of
Columbia) suggests that there is significant variation in regulatory practices across
states, and that many states have a limited ability to monitor problems or trends in the
marketplace.22 It also suggests that many states make approvals for rate increases
based on inadequate information and that a number of states may lack the necessary
authority or resources to stop rate increases.23
California, Connecticut, New York, and Indiana have strong regulatory
oversight of partnership policies, compared to other states’ regulatory oversight of
LTC insurance products. According to partnership directors, this is largely a result
of problems identified with products over the years and the requirement (agreed upon
in the original program design with RWJ, not written into statute) that state
commissioners approve all plans before they can be deemed eligible to participate in
20 For more information on HIPAA’s LTC provisions, see CRS Report RL31634, The Health
Insurance Portability and Accountability Act (HIPAA) of 1996: Overview and Guidance
on Frequently Asked Questions, by Hinda Chaikind, Robert Lyke, Stephen Redhead, and
21 Report from the National Association of Insurance Commissioners, Aug. 2003.
22 CA declined to participate.
23 Steven Lutzky, Lisa Maria B. Alecxih, and Ryan Foreman, “The Lewin Group. Long-
Term Care Insurance: An Assessment of States’ Capacity to Review and Regulate Rates,”
AARP Public Policy Institute, Washington, DC, 2002.
the partnership program. According to state officials from the partnership states, the
need to approve plans has provided a catalyst for increased consumer protection
requirements and more comprehensive oversight of the LTC insurance market, in
general, and the partnership market, in particular. A state official from Connecticut,
for example, explains that about 20% of LTC plans offered in Connecticut prior to
the implementation of the partnership plan included compound inflation adjustment.
As a result of increased attention to partnership policies in the state, he explains,
Connecticut now requires that all partnership policies include protection against
inflation. Now, not only do 100% of the partnership policies include inflation
protection, but about 60% of non-partnership policies sold by partnership-
participating carriers include inflation protection as well.24 California, Connecticut
and New York25 also require that all partnership policies meet the HIPAA
requirements for favorable federal tax treatment. Indiana provides consumers the
option to purchase either a tax-qualified or non-qualified partnership policy.
Despite increased attention to oversight by partnership states, little information
is available about the extent to which these states track problems with insurance
products after they are approved; oversee insurers’, carriers’ and agents’ marketing
practices; and evaluate the suitability of the products purchased (e.g., do products
purchased provide adequate coverage or must policyholders make large out-of-
pocket expenditures to cover the difference between the benefit payments and the
actual cost of services).
National Standards for LTC Insurance Products. The current political
environment may make imposing stricter federal standards on LTC policies difficult
to enact. Part of this difficulty is a result of opposition from insurers concerning
stricter oversight of LTC insurance products in general. Although many insurers
strongly oppose stricter federal requirements on all LTC insurance products, some
support the adoption of standardized requirements for partnership policies at the
national level. These insurers assert that such standards would facilitate their ability
to develop a single partnership product that can be marketed in each state, without
having to modify each policy to comply with state’s separate laws and regulations.
This, they assert, would free insurers from the burdensome responsibility of
designing a distinct product for each state and would provide them the opportunity
to compete with each other for the sale of similar products.
The partnership states themselves have also come together to develop
recommendations for regulations that could be part of a national model. A summary
of these regulations can be provided upon request.
Affordability of Premiums. One of the key issues in considering the role
private insurance can play in long-term care financing is affordability. Long-term
care insurance can be costly, with premiums depending greatly on the benefit
packages purchased and the age of individuals at the time of purchase (generally, the
older the individual, the higher the premiums). According to an AHIP survey in
24 Phone conversation with the director of Connecticut’s LTC partnership program
25 NY requires that all policies issued post-1997 meet these HIPAA requirements.
2002, substantial increases in premiums can be seen when compound inflation and/or
nonforfeiture riders are added to the policies. Table 5 shows the findings from the
AHIP survey of 11 of the top 13 LTC insurance sellers in 2002.
Table 5. Average Annual Premiums for Top Long-Term Care
Insurance Sellers in 2002
With 5%With ainflation protection
compound inflationnonforfeitureand nonforfeiture
Ag e B a se protection benef it benef it
40 $422 $890 $537 $1,117
50 $564 $1,134 $715 $1,474
65 $1,337 $2,346 $1,646 $2,862
79 $5,330 $7,572 $6,479 $8,991
Source: America’s Health Insurance Plans, Long-Term Care Insurance in 2002: Research Findings,
Washington, DC, June 2004.
In recent years, policymakers, analysts and consumers have raised concerns
about rate stability. A 2004 report by HIAA explains that the average change in
premiums of policies sold in 2002 by top sellers compared to policies sold in 2001
was about 5%.26 For the period between 1999 and 2002, the average change in
premiums of policies was less than 1% for different age and policy categories.27
However, it is still possible that some firms may be more likely to raise premiums
than others. Unexpected rate increases may affect a policyholder’s desire and ability
to continue the policy.
Once a policy is purchased, premiums must remain fixed throughout the
policyholder’s lifetime, unless a carrier receives approval from a state insurance
commissioner to raise rates for all policyholders in a particular class. Premium
increases of policies already sold may also vary by state. Some states may be more
likely to approve insurers’ requests to increase rates than others states. Approval
decisions are based, in large part, on the standards adopted by each state.
Although the oversight of LTC insurance premiums can help prevent
unnecessary premium increases, it may also encourage plans to be more conservative
then they might otherwise need to be. For example, rather than take the risk of
applying to the state regulatory agency for approval of a future rate increase if it
becomes necessary, an insurer may seek approval one time, but at a higher premium
level than necessary, to hedge its future risk.
26 America’s Health Insurance Plans, Long-Term Care Insurance in 2002: Research
Findings, Washington, DC, June 2004.
27 Health Insurance Association of America, Long-Term Care Insurance in 2000-2001,
Washington, Jan. 2003.
The Suitability of Products Purchased. Another concern of policymakers
is the risk that private sector insurers and agents, eager to earn profits and
commissions (respectively), will inappropriately sell products to persons with low
incomes and assets who cannot afford to pay premiums long-term. Persons who
become unable to pay the premiums will have their policies cancelled. Under these
circumstances, the insurer would gain premium revenue without having to pay
A related concern is that persons with lower incomes may purchase policies that
are inadequately valued, so that the cost of the LTC benefits needed will exceed the
amount paid by private benefits. (For example, if the policy purchased covers $150
of nursing home care per day, but nursing home care for that individual costs $250
per day, then the policyholder would be required to make up the difference.) This is
particularly troublesome for lower income persons who may not be able to afford to
pay the difference in cost. For these persons, the purchase of inadequate policies
could lead to the rapid spend down of a policyholder’s income and assets (other than
those protected), leading policyholders to meet the financial eligibility criteria for
Medicaid sooner than they otherwise would with better coverage.
On the one hand, the pay out of the LTC insurance policy toward the cost of care
for these individuals would delay their spend down to Medicaid, even if the pay-out
is insufficient to cover all of the individual’s care costs. On the other hand, the fact
that private LTC benefits are counted as income when determining Medicaid
eligibility could disqualify an individual from meeting the necessary income
standards to qualify for Medicaid, depending on the income counting rules used by
the state to determine Medicaid eligibility. Such persons would not be able to obtain
sufficient care through their LTC insurance policies and might not be able to afford
to cover the costs of their care with their personal income.28 The directors of the
partnership programs argued that as oversight of LTC insurance policies improves,
this problem is decreasing in prevalence.
Partnership states have attempted to address these concerns through regulatory
standards concerning suitability and minimum benefit packages. Statutory or
regulatory language concerning how partnership policies are marketed, sold and
regulated could also address some of these concerns.
28 For example, such a person could be determined ineligible for Medicaid in a state that
uses the Medicaid nursing facility rate when calculating an applicant’s spend down. States
that cover nursing facility care under their medically needy programs have the option of
using either the Medicaid or private pay (e.g., private insurance or out-of-pocket) nursing
facility rates as a standard for determining an applicant’s eligibility. This means that states
compare a person’s monthly income to the cost of nursing home care in that state, either in
terms of the total amount that would be paid by Medicaid for a month (Medicaid rate) or the
total amount that would be paid by the private pay rate. Often the Medicaid monthly rates
are lower than the rates paid by private insurance or out-of-pocket. When the Medicaid rate
is lower, it is harder for applicants to spend-down to the required level. (In general, if an
applicant’s income minus the cost of the Medicaid reimbursement or private pay rate,
whichever is used by the state, exceeds the state income limit, then the applicant cannot
qualify for Medicaid coverage of institutional care under a medically needy option.)
Insurer Underwriting. Individual policies are sold with substantial
“underwriting” — meaning the carrier requires detailed information regarding one’s
medical history. (Group policies may or may not be sold with full or partial
underwriting.) Underwriting is used by insurers to protect against the “adverse risk
selection” that can occur if individuals buy policies when they know or suspect that
they may soon need to make use of the insurance. Age is another major factor
considered by insurance companies in coverage because the probability of claims is
highly correlated with age. As a result, not all persons who can afford LTC insurance
can obtain it, even if they apply. For example, of the 31,151 applications that were
received in the decade between April 1, 1992 and June 30, 2002 in Connecticut,29
3,640 (11%) were denied. Of the persons denied, 29% had hypertension either prior
to or at the time of the survey, 14% had cancer in the past (3% at the time of the
survey), 20% had arthritis in the past (24% at the time of the survey), 14% had a
stomach condition in the past (4% at the time of the survey), and 17% had a heart
condition in the past (11% at the time of the survey). In California, for example, of
the 73,809 applications received for partnership policies (as of September 2003),30
12,857 applications (17%) had been denied since the program’s establishment. Of
the 36,474 applications received in Indiana (as of 3/04), 5,142 applications (14%)31
were denied. Persons who are denied coverage are forced to apply their savings to
cover the cost of their care and cannot benefit from the asset protection offered to
healthier persons under the partnership program.
The Partnership Program’s Interaction with Medicaid
Equity within the Medicaid Program. Providing asset protection to
Medicaid beneficiaries who purchase LTC insurance reflects policies that differ
significantly from Medicaid’s general policies on eligibility. Medicaid is a program
for the poor or for persons who have become poor. Eligibility for the program is
designed to allow only persons with a small amount of assets, generally $2,000, to
qualify for coverage. Medicaid law also contains rules that are designed to prohibit
persons from transferring assets in order to qualify for coverage sooner then they
otherwise would. Some say that the purpose of these provisions is to assure that
limited federal resources are available only for those in need. By disregarding
additional assets of partnership participants, some say that the program violates these
Providing special treatment to purchasers of partnership policies also raises
equity concerns because it treats one group of Medicaid applicants differently from
other groups of applicants. Under the partnership program, persons who can afford
LTC insurance benefit from partial or full asset protection. Rather than depleting
their assets on their care to qualify for Medicaid, these persons can retain some or all
29 Annual Report for The Connecticut Partnership for Long-Term Care: Evaluation Studies
July 1, 2001-June 30, 2002. Issued Oct. 2003.
30 California Partnership for Long-Term Care, July-Sept. 2003: Quarterly Report, Third
Quarter 2003, Report No. 37, at [http://www.dhs.ca.gov/cpltc].
31 Information provided to CRS by the state director of the Indiana LTC partnership
of their assets and use them to either maintain a certain living standard and/or pay for
care not covered by Medicaid. While not all of these assets may be protected by the
partnership program, some amounts will not be applied to the cost of care in the
event that Medicaid begins to cover expenses. Furthermore, some or all of this
group’s protected assets are exempt from Medicaid estate recovery so they may pass
on their assets to their heirs. Persons who cannot afford LTC insurance, who
purchase a non-partnership LTC insurance policy, or who are denied coverage by
LTC insurers, on the other hand, would be required to meet Medicaid’s strict asset
requirements and be subject to Medicaid estate recovery.
The Role of Asset Protection. The partnership program is intended to
result in Medicaid savings by delaying or preventing spend-down to Medicaid
eligibility for those persons who can afford private coverage. This could serve to free
some of Medicaid’s resources for use by persons with greater financial need. The
following discussion explores claims made by partnership proponents that the
program’s asset protection: (1) provides an incentive to persons to purchase private32
insurance; and/or (2) helps “save” Medicaid expenditures.
Asset Protection as an Incentive to the Purchase of Insurance.
Limited empirical data are available to demonstrate whether the asset protection
promised under the partnership program is a sufficient and necessary incentive to
encourage the purchase of policies by persons who would not otherwise purchase
them. The partnership states have attempted to test the reliability of these claims
through small-sample surveys of partnership purchasers. The following is a brief
description of what they found:
!California Purchaser Survey. A 2002 survey in California found
that three principal reasons motivated the 629 survey respondents in
2002 to purchase partnership policies. They were: (1) to pay for
future services (90%); (2) to protect the spouse and family (81%);
and (3) to protect the assets of the purchaser (74%). Slightly under
25% of respondents stated that they purchased a policy as an
alternative to transferring assets. Further, respondents were asked
to rate the relative importance of specific partnership policy features
when selecting their policy. Findings show that 79% of respondents
felt it was important or very important to have the state seal of
approval on the policies and 82% felt that Medicaid asset protection
feature was important or very important.33
!Indiana Purchaser Survey. A 2002 survey in Indiana found that
four principal reasons motivated the 576 survey respondents in 2002
to purchase partnership policies. They were: (1) to pay for future
LTC services (88%); (2) to protect assets (86%); and (3) to protect
spouse and/or family (86%). About 40% of respondents also said
32 It is also intended to discourage persons from transferring their assets to qualify for
Medicaid sooner than they otherwise would.
33 “Purchaser Survey 2002,” CA Department of Health Services, CA Partnership for Long
Term Care: Annual Report, Oct. 2003
that seeing their parents or other relatives use LTC services also
encouraged them to purchase LTC insurance. Fifteen percent of
respondents stated that they purchased a policy as an alternative to
Further, respondents were asked to rate the relative importance of
specific partnership policy features when selecting their policy.
Findings show that 67% of respondents felt it was important or very
important to have the state seal of approval on the policies, 67% felt
that Medicaid asset protection feature was important or very
important, 83% felt that it was important or very important that the
policy included home care, and 77% felt it was important or very
important that the policy included inflation protection.34
!New York Purchaser Survey. A 1995 survey in New York found
that three principal reasons motivated the 2,794 survey respondents
to purchase partnership policies. They were: (1) to protect their
assets; (2) to remain financially independent and (3) to cover the cost
of LTC. Respondents also stated that additional considerations
included lifetime coverage available through asset protection under
Medicaid; the state’s seal of approval offered on partnership
policies, and the state’s monitoring process established to review
insurer denials of requests that benefits be paid. In addition, 25% of
respondents stated that in the absence of partnership policies they
would transfer their assets and depend on Medicaid if they were to
!Connecticut Purchaser Survey. A 2001-2002 survey in
Connecticut found that three principal reasons motivated the 699
survey respondents to purchase partnership policies. They were: (1)
to pay for future services (88%); 2) to protect spouse and family
(87%); and 3) to protect their assets (84%). Slightly under 31% of
respondents stated that they purchased a policy as an alternative to
transferring assets. Further, respondents were asked to rate the
relative importance of specific partnership policy features when
selecting their policy. Findings show that 89% of respondents felt it
was important or very important to have the state seal of approval on
the policies and 91% felt that the Medicaid asset protection feature
was important or very important.36 When probed further about the
role of Medicaid asset protection in making their decision to
purchase, 83% of respondents said that they considered purchasing
LTC insurance before hearing about the partnership; 66% said that
34 IN Long-Term Care Insurance Program — Policyholder Survey. Data is a compilation
of all 2002 survey data.
35 1995 survey of 2,794 NY partnership purchasers.
36 Annual Report for The CT Partnership for Long-Term Care: Evaluation Studies, July 1,
the partnership program influenced their decision to purchase; and
72% said that they would have purchased LTC insurance without
These findings suggest that for most respondents, the asset protection promised
by LTC insurance in general played a significant role in encouraging persons to
purchase insurance. However, the data do not show that it was sufficient and
necessary to encourage the purchase of LTC insurance without the existence of other
motivating reasons. On the contrary, the data suggest that Medicaid asset protection
is just one of several motivating reasons that can lead a person to purchase insurance.
Without more data, it is reasonable to conclude that for some, the promise of
Medicaid asset protection plays a significant role in conjunction with other
motivating reasons, while for others it plays a smaller role.
Policymakers have also expressed concern about the partnership program
providing asset protection to persons who would otherwise have purchased insurance
without it and/or to persons with high wealth status. The broad criteria for obtaining
asset protection under the partnership program could allow this to occur. On the
other hand, if savings from the partnership program occur as a result of delaying or
preventing Medicaid enrollment, these savings could also be used to cover additional
persons under Medicaid who cannot afford LTC insurance.
Asset Protection versus Medicaid “Savings”. Supporters of the
partnership program assert that the purchase of LTC insurance delays or prevents
spend-down to Medicaid eligibility and that this, in turn, saves Medicaid funds that
otherwise would have been spent on care for these persons. Proponents assert that
proof of this can be seen by state data showing that few qualified LTC policyholders
end up accessing Medicaid coverage for their LTC needs (see Table 1). Opponents,
on the other hand, note that the program is only in its early phase of operation, and
as policyholders age, the population of persons who spend down to Medicaid will
A small study conducted by California’s partnership program attempted to
calculate the impact of asset protection on California’s Medicaid budget. The study
was conducted of 18 partnership participants who eventually qualified for Medicaid.
Combined, these persons had a total of $347,600 in assets, or $19,000 each on
average, at the time they met the requirements for their private LTC insurance
benefits. Without the existence of their partnership LTC policies, California
assumes that the assets of these individuals would have been used to cover the cost
of their nursing home care. At the average Medicaid nursing home rate of $4,415 per
month in California, these funds could have paid for a total of about 78 months of
nursing facility care, or fewer than five months on average per person.37 In total, the
18 individuals used 466 months of nursing home care, or slightly fewer than 26
months per person. All of these months were paid by their LTC insurance policies.
37 In reality, these individuals would have been subject the private nursing home rate that
for many, would have been higher, and resulted in fewer months of private coverage.
To determine how much California’s Medicaid program would have paid for
nursing home care if these 18 individuals had sought Medicaid coverage instead of
LTC insurance, California multiplied its monthly Medicaid rate ($4,415) by the total
number of nursing home months used by the 18 individuals (466 months) minus the
spend down months (78 months). It then subtracted the income of the eligible
individuals’ that would have been applied toward the cost of their care. Through this
analysis, California estimated that the existence of the private policies resulted in
$1.3 million that Medicaid might have paid had these individuals sought Medicaid
coverage for their nursing home coverage instead of private LTC insurance coverage.
It is important to note, however, that this study provides no information about
whether these individuals transferred assets before applying for Medicaid.38
Reciprocity between and among States for Partnership Policies.
Since the establishment of partnership programs, some partnership participants who
have interest in moving out-of-state have expressed concern that other states’
Medicaid programs cannot offer them the same asset protection that is offered by
their home states. These individuals assert that without interstate reciprocity
agreements that allow them to protect their assets after they change states in a manner
consistent with their former state’s partnership policies, they would be forced to live
out their retirements in the same state in which they purchased their partnership
policies. Connecticut and Indiana have received CMS approval to enter into a
reciprocal agreement so that each state honors the commitment of dollar-for-dollar
asset protection offered by the other state. If partnership policies were made widely
available across the nation, reciprocity between and among states would need to be
addressed either at the federal or state levels.
A number of states are likely to support a standard reciprocity provision. For
many states, a reciprocity provision would offer their partnership participants
freedom to live out their retirement in a different state, thus relieving some states of
the potential financial strain to their Medicaid programs. Other states, especially
those that attract large numbers of retirees, such as Florida, Arizona, California and
Nevada, may oppose such a provision as it could increase the risk that those states
would be obligated to pay the Medicaid long-term care expenses of more individuals
than they might otherwise pay. Without more data showing whether the program
incurs savings or costs to the Medicaid program, it is possible that those states with
high numbers of retirees may be hesitant to enter into a reciprocity agreement with
other states. Furthermore, if wider implementation of the partnership program occurs
giving states the choice to use either a dollar-for-dollar model and/or a total asset
protection model, reciprocity between states with different models would be difficult.
Two identical congressional proposals were introduced in the 108th Congress
that would have repealed the provision in §1917 of the Social Security Act that
prohibits additional states from exempting LTC insurance buyers from Medicaid
estate recovery requirements. S. 2077, introduced by Senator Craig, and H.R. 1406,
38 Summary of study provided to CRS by the CA LTC partnership program.
introduced by Representative Peterson, would have repealed the provision requiring
states to have state plan amendments approved as of May 14, 1993, and would have
allowed states the option of seeking or not seeking estate recovery from persons who
purchase LTC insurance policies.
In addition, the President’s FY2004 and FY2005 budgets proposed to eliminate
the legislative prohibition against developing more partnership programs and
considered these provisions to have no cost to the federal budget.
It is likely that the additional proposals will be introduced in the 109th Congress