What would happen to your spouse financially if you were to require in-home, assisted living or nursing home care in retirement?
Because Medicare and private health insurance do not pay for the majority of long-term care services, you could be forced to spend down your bank account to $2,000 in order to qualify for Medicaid. A lifetime of earnings wiped out by a single health event.
"If you retire on $300,000 and you need five years of care, all the money is gone and you've left your spouse on welfare," says Jesse Slome, executive director of the American Association for Long-Term Care Insurance, or AALTCI.
Partnership plans to the rescue
But there's a little-known alternative called a long-term care partnership plan, available in most states, that can give this gloomy scenario a much happier ending.
A state-qualified LTC partnership plan, called PQ for short, is offered through a partnership of your state government, the private insurance companies that sell the policies and state residents who buy them. It looks much like a standard LTC policy with one important difference: asset protection.
Under a PQ plan, the state agrees to let you keep a preselected amount of your personal assets -- that is, they disregard those assets -- should you exhaust your LTC benefits and need to go on Medicaid.
"The partnership is the best-kept secret in long-term care insurance," says Slome. "If I were selling it, it would be the only thing that I would advocate."
Say you're married and one of you falls ill and requires assistance with the activities of daily living. If you don't have an LTC policy, you would ultimately spend down your resources to $2,000 to qualify for Medicaid. If you have a standard LTC policy, it would cover you to the maximum benefit amount, after which you also would likely spend down your assets to the Medicaid mark.
Keeping your assets
But with a PQ plan, you are allowed to keep assets above the $2,000 Medicaid threshold equal to the amount your policy has paid out for your care. And because all PQ plans are required to include inflation protection, you'll likely be able to keep even more when you need it most.
Here's an example: Tom purchased a PQ policy worth $100,000. Years later, he went on claim and received benefits to the lifetime maximum of $150,000 (adjusted for inflation). When he applies for Medicaid, he will be allowed to keep $152,000 in assets, provided he meets the other Medicaid requirements. Without the PQ policy, he would have been left with $2,000.
PQ plans were introduced in four states -- California, Connecticut, Indiana and New York -- in the late 1980s as an incentive for middle-class Americans to purchase LTC insurance, and thus help delay or avoid entirely the need for Medicare to pay for their long-term care. Since then, LTC partnership programs have spread nearly nationwide.