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.
Slome says a PQ policy most benefits those who need to protect assets equal to two or three years’ worth of care, or roughly $200,000 to $300,000. The good news is, according to an AALTCI survey, only one in 10 (8 percent) of LTC policyholders require more than three years of coverage.
“Most people who buy a partnership policy don’t end up on welfare,” he says.
PQs must be state certified and contain comprehensive coverage (nursing home and home care) and have an inflation protection component set by the state. Although states that offer partnership programs generally honor the asset disregard you earned from another state’s PQ plan, they also reserve the right to opt out of reciprocity at any time.
Partnership policies are available as group and individual plans. Employers typically do not contribute to PQ plans as they do with health insurance, but they may offer a better group rate and may make it easier to qualify. Check with your benefits administrator about availability.
Shop around for the best deal
Although partnership plans may be nearly identical to non-PQ policies, you’ll have to purchase individual coverage from an agent who has received additional state-approved training and been certified to sell PQ policies. Check with your state Department of Insurance regarding availability of PQs in your state and a list of certified policies.
With all this partnering going on, you might think that PQ policies would all cost about the same. Not so, says Slome.
“Prices can vary by 40 (percent) to 45 percent from one carrier to the next,” he says. “It really is important to shop, because each company has ‘sweet spots’ in terms of who they are looking to attract. If your insurance agent only represents one carrier, you may have to do the legwork yourself.”
According to Slome, a 55-year-old with preferred health purchasing long-term care insurance can expect to pay $1,450 per year for about $169,000 of current benefits that will grow to about $354,000 when he or she turns age 80. A 55-year-old couple with average health purchasing an LTC policy can expect to pay $2,350 per year combined for about $338,000 of current benefits ($169,000 each), which will grow to about $800,000 of combined coverage for the couple when they turn age 80. A 65-year-old couple with average health can expect to pay $4,660 per year combined for about $338,000 of current combined benefits, which will grow to about $527,000 of combined coverage at age 80.
And if the premiums look like they’ll bust your budget before they cover your assets, Slome says simply downsize your plan.
“Some coverage is always better than none,” he says. “When you add in that asset protection, it’s the best of all worlds. You’re not leaving your spouse financially destitute.”