Introduction

Seniors who planned ahead and made the investment in long-term care insurance can also have Medicaid. The two insurance plans will work together to provide complete coverage for individuals who have both. Long-term care insurance policies purchased from a company that is part of the state’s partnership program can have a positive impact on Medicaid eligibility, and can protect a beneficiary’s resources from Medicaid Estate Recovery. However, long-term care insurance policies that have a cash surrender value (CSV) or are straight-pay can have a negative impact on Medicaid eligibility and should be avoided by potential applicants.

Long-Term Care Insurance Basics

Long-term care insurance provides coverage in nursing homes, assisted living residences, policy holders’ homes, the homes of loved ones and memory care facilities for Alzheimer’s disease and other dementias. These policies often prove to be sound investments because Medicare and most typical medical insurance policies will not cover the high costs of long-term care.

The best time to purchase long-term care insurance is when the policy holder is still healthy and years before they expect to need it, typically during their 50s or 60s. The consumer picks a policy that fits their budget and needs, selecting a maximum daily benefit amount and a maximum lifetime benefit amount that will affect the amount of their premium payments, which can be monthly or annual. When they eventually need long-term care, the insurance will cover the costs. What constitutes a “need” for long-term care will be defined in the policy.

How LTC Insurance Works with Medicaid

Medicaid also covers long-term care in nursing homes, beneficiaries’ homes and, in most states, assisted living residences and memory care facilities. Nursing Home Medicaid covers all essential expenses in nursing homes, including room and board. Home and Community Based Services (HCBS) Waivers or Aged, Blind and Disabled (ABD) Medicaid can cover long-term services and supports for beneficiaries who live in their own home, the home of a loved one, and, in most states, assisted living facilities including memory care, but neither program will cover room and board expenses in any of those settings.

For seniors who have both, Medicaid will cover whatever expenses are not paid for by the long-term care insurance policy. For example, Joe is a HCBS Waiver beneficiary who also has a long-term care policy with a $300/day maximum benefit. His long-term care expenses come to $350/day, so after his long-term care insurance covers $300/day, Medicaid will pay for the remaining $50/day.

Not only does Medicaid cover what long-term care insurance does not on a daily basis, it also does it on a permanent basis when the time is right. Once the long-term care insurance policy pays out its maximum lifetime benefit amount, Medicaid will assume all long-term care costs for the beneficiary moving forward.

It should also be noted that long-term care insurance policies that do not have a cash surrender value (CSV), which is most of them, will not be counted toward Medicaid’s eligibility asset limit. There are some policies that do have a CSV, which we will discuss below.

Long-Term Care Partnership Programs with Your State

Most states offer long-term care partnership programs that provide benefits to people who have both Medicaid and long-term care insurance. The “partnership” is an agreement between the state Medicaid agency and the private companies that sell long-term care insurance. These programs help long-term care insurance policy holders qualify for Medicaid by allowing them to keep assets well above Medicaid’s typical eligibility asset limit, as long as their policy was purchased from a company that is part of the partnership program and they have put that policy to use, a process described in more detail below. We’ll also explain how these partnership programs can protect the policy holder’s resources from Medicaid Estate Recovery, which means the policy holder can leave their resources as a family inheritance without worrying the state will claim it instead.

To qualify for Medicaid, applicants must meet an asset limit, which is relatively low in most states except California, where there is no asset limit. However, if the applicant also owns a long-term care insurance policy purchased from a company that is part of the state’s partnership program, and they have put that policy to use, their asset limit will increase. For example, Marge has a long-term care insurance policy that will cover $200,000 in long-term care expenses. She decides to apply for Medicaid long-term care after she has used $100,000 of the policy. The individual asset limit for eligibility in her state is normally $2,000, but for her it’s now $102,000 because she used $100,000 of her long-term care insurance.

Not only can Marge qualify for Medicaid with the extra $100,000, that $100,000 is now protected from Medicaid Estate Recovery. All states are required by law to try and collect reimbursement for long-term care expenses after the death of a Medicaid beneficiary, a process that is known as estate recovery. But the long-term care partnership program protects money equal to what the long-term care insurance has paid out, like Marge’s $100,000, so she can be sure that if there is $100,000 in her estate after her death, it will go to her family or other inheritors and not to the state.

Types of Long-Term Care Insurance Medicaid Applicants Should Avoid

There are two types of long-term care insurance policies that seniors who may need Medicaid should avoid – straight-pay policies and hybrid life/long-term care policies with a cash surrender value.

Most long-term care insurance policies make payments directly to care providers such as nursing homes or in-home caregivers. However, there are some policies that send payments directly to the holder that are known as straight-pay policies. These payments will be counted toward Medicaid’s income limit for eligibility, which is why potential Medicaid applicants should avoid these kinds of policies.

Most long-term care insurance policies do not have a cash surrender value (CSV), and therefore they do not count toward Medicaid’s asset limit for eligibility. But there are some hybrid life insurance/long-term care insurance policies that do have a CSV, and this value will be counted toward the asset limit. So, potential Medicaid applicants should also avoid these kinds of long-term care policies.

Even if a senior is over their asset limit, there are still ways to qualify with Medicaid planning strategies. These tend to be complicated, and we recommend consulting with a professional before attempting to utilize them.