Q. While shopping for long-term care insurance, I heard something about a special kind of policy that offers asset protection by coordinating with Medi-Cal. Do you know anything about that?

A.  Yes, you refer to the California Long-Term Care Partnership Plan. California was one of the first states in the country to put together a very unique long-term care insurance policy as a kind of partnership among the state, the individual, and selected insurance companies. The  program was designed to encourage individuals to purchase long-term care insurance and thereby shift much of the cost of long-term care away from public benefits programs and on to the individual and his insurance carrier.  The inducement is the offer of a high-quality policy with automatic inflation protection and a corresponding Medi-Cal asset protection feature.  To understand how the policy works, let’s review how Medi-Cal works:

Background: Generally speaking, in order to qualify for a Medi-Cal long-term care subsidy in a nursing facility, single individuals generally cannot have more than $2,000 in savings, and a married couple no more than approximately $120,000. They may also have certain exempt assets, such as a home.  However, if their savings exceed these resource ceilings, they must then generally spend them down on care until they fall below those ceilings.  Only then will they be eligible for a Medi-Cal subsidy.  However, if an individual owns a Partnership Policy, the amount of the policy payout for care expenses increases the insured’s Medi-Cal resource ceiling by that amount, thereby accelerating his eligibility for Medi-Cal and, later, protecting as much in assets from Medi-Cal recovery.

Example:  Jane and Mary are both age 65, each has $175,000 in savings and each owns her own home.  Jane buys a Partnership Policy and Mary buys a Non-Partnership policy. Both policies provide for two years of benefits and both have inflation protection.  At age 85, both need nursing home care and both begin to draw policy benefits.  Because of inflation, the cost of care for those two years has increased to approximately $500,000, of which approximately $450,000 was paid by insurance.  After two years their insurance benefits are exhausted, and both turn to Medi-Cal for help:

Medi-Cal Without “Spend Down”:  Because Jane had purchased a Partnership Policy, she is allowed to keep $450,000 plus the normal $2,000 for a total of $452,000 in resources and immediately qualify for Medi-Cal.  However, because Mary had not purchased a Partnership Policy, Medi-Cal requires that she first spend down her assets to no more than $2,000 before becoming eligible, essentially forcing her to deplete her estate.

Protection From Estate Recovery:  After qualification, both Jane and Mary continue to receive a Medi-Cal subsidy for the rest of their lives.  At their deaths, Medi-Cal files a claim against Mary’s estate to recover benefits paid, and the recovery claim eats up most of her estate.  However, because Jane had purchased a Partnership Policy, her estate is protected up to the amount of $450,000, the amount of her policy payout, allowing Jane to leave most of her estate to her designated beneficiaries free of any Medi-Cal recovery claim.

For those considering the purchase of long-term care insurance, it makes sense to consider a Partnership Plan Policy. With advance planning, it can be a viable alternative to Medi-Cal planning in a crisis. For more information, visit www.RUReadyCA.org. For free counseling, contact  HICAP at 510-839-0393 (Alameda County) or 1-800-434-0222 (Statewide) and ask for a Long Term Care HICAP Counselor.