The demographic shift toward an aging population has thrust the coordination of long-term care insurance and Medicaid benefits into the spotlight of elder law practice. For practitioners advising individuals on long-term care planning or advising providers on reimbursement strategies, understanding how these funding mechanisms interact is essential to effective representation.
Understanding Long-Term Care Insurance
Long-term care insurance is a specialized insurance product designed to help cover the costs of extended care services that are not typically covered by traditional health insurance or Medicare. Medicare provides only limited coverage for skilled nursing care (maximum 100 days per benefit period), and traditional health insurance focuses on acute medical treatment. Long-term care insurance, on the other hand, specifically addresses the needs of those struggling to complete their own activities of daily living.
The insurance product has evolved considerably over the past decade. Traditional policies operate on a reimbursement model, paying for covered services up to predetermined daily or lifetime maximums. Hybrid products that combine long-term care benefits with life insurance or annuities have gained market share, appealing to consumers concerned about "use it or lose it" scenarios associated with traditional long-term care insurance.
Policy structures vary significantly, but most include elimination periods, benefit periods ranging from two years to lifetime coverage, and optional inflation protection options. These policies will cover qualifying care in at home or in the community, as well as the cost of care provided in skilled nursing facilities and, sometimes, assisted living facilities.
Logistically speaking, most policies require that claims be remitted for the care provided to the individual on a monthly basis. It is important that the admissions department is aware whether each resident has a long-term care insurance policy so that claims can be timely submitted. Of note for care providers specifically, these policies often operate under a reimbursement structure, wherein the insured resident or their representative is mailed the funds to pay claims. It is up to the resident or their representative to remit the funds to the facility. This can create issues for facilities and care providers, as bad-acting, or simply negligent residents or their representatives will fail to use the funds to pay for the care provided. Special attention must be paid to these cases in order to avoid a growing and unaddressed balance due for care already provided. Other policies will reimburse the care provider directly. However, that payment cannot be made unless claims are timely and properly submitted; a task that often falls to the care provider.
Medicaid Eligibility Implications
Long-term care insurance benefits are generally treated as income for Medicaid eligibility purposes. This income treatment can temporarily disqualify individuals from Medicaid benefits. While receiving insurance benefits, individuals can preserve assets that would otherwise require spend-down, providing greater financial security for both the individual and their family. A strong long-term care insurance policy, that includes a reasonable inflation rider, can enable an individual to avoid the need to seek Medicaid benefits altogether. In those instances, it allows the individual to preserve their assets and potentially transfer assets to their families. When an individual is able to rely on their long-term care insurance benefits to pay for their care, they do not need to liquidate their other assets in order to pay for the cost of their care, resulting in more money available to them, should their health improve and they are able to return to the community, or to their spouse and family, after they pass away.
Oftentimes, however, long-term care insurance policies fail to provide sufficient reimbursement to cover the cost of long-term care, especially in a skilled nursing facility. This is due to the rapidly increasing cost of skilled nursing facility care. Elders who purchased these policies decades ago, when the premiums seemed reasonable, may find that the $150/day reimbursement rate and $100,000/lifetime benefit that looked so promising at the time, now falls far below the average cost of care for a skilled nursing facility. In these situations, Medicaid may still be needed to cover the shortfall. In some states, the Medicaid income limits foreclose the possibility of the individual qualifying for long-term care benefits until their policy benefits are exhausted. In other states, Medicaid can be obtained, assuming all other eligibility requirements are met, so long as the Medicaid reimbursement rate exceeds that of the benefit reimbursement rate.
Many states’ Medicaid programs have strict asset limits. As previously noted, many of these long-term care policies provide reimbursement directly to the insured, leaving it up to the insured individual to remit the benefit funds to the care provider on a timely basis. Medicaid programs that require an applicant to keep their asset level below $2,000.00 may run into eligibility issues if they deposit the benefit funds received and do not quickly turn them over to the care provider.
Partnership Program Considerations
The Long-Term Care Insurance Partnership Program, available in participating states, provides additional asset protection through dollar-for-dollar disregards. Individuals who purchase qualifying partnership policies can protect assets equal to the benefits paid by their insurance when applying for Medicaid. The Partnership Program was developed in a few states in the 90s. The 1993 Omnibus Budget Reconciliation Act prevented the program from spreading to new states. In 2005, however, the Deficit Reduction Act gave all states the option of creating Partnership Programs, which benefit both long-term care insurance companies and the states where they operate. All states but Alaska, Hawaii, Massachusetts, Mississippi, Utah and Vermont participate in the Partnership Program. Utah authorized the participation in the Partnership Program in 2014, but the state has failed to fully implement it. Massachusetts has a policy regarding qualifying long-term care insurance plans, called MassHealth Qualified Policies, that allow an individual to protect their home from estate recovery liens, if the individual eventually requires long-term care Medicaid, as long as their long-term care insurance policy meets the state-set requirements. This allows the individual to pass their protected home as inheritance to their family without the need for their family to pay off an estate recovery lien that might otherwise force them to sell the property. Many states that participate in the Partnership Program provide this same benefit to individuals who purchase participating policies and eventually require long-term care Medicaid benefits.
Conclusion
In the evolving marketplace of health insurance, long-term care insurance meets a growing need for the aging population to pay for the rapidly rising cost of long-term care. For it to be used most effectively, however, it must be carefully coordinated with Medicaid planning strategies in mind.
Effective planning requires understanding the specific rules in each state, the terms of individual insurance policies, and the unique circumstances of each family. As Medicaid rules continue to evolve and long-term care costs continue to rise, the importance of sophisticated planning in this area will only increase. Early planning is essential, as many of the most effective strategies require implementation well before care is needed.
From the long-term care healthcare providers’ perspective, a prospective resident with a long-term care insurance policy is almost always good news. An additional source of funds at the private rate helps providers offset the low reimbursement rates provided by Medicare and Medicaid. But in order to ensure those benefits accrue to the healthcare provider, prompt investigation of policies to determine their plan limitations, as well as prompt submission of claims and follow up with the resident or their representative to ensure benefits funds are remitted for payment are a must. With proper planning and action on the part of the resident, and attentive revenue cycle management on the part of the skilled nursing facility, both parties will be benefit from the long-term care insurance policy and from a smooth transition to Medicaid benefits once the policy benefits are exhausted.
