Choosing Between Two Partnership Policies at Age 73
Frank, age 73, is married to a 70-year-old wife and has $1.2 million in assets, including a mortgage-free home, plus $65,000 per year in retirement income. He has hypertension and mild arthritis but no current need for long-term care. He wants long-term care insurance mainly to protect assets from Medicaid. An agent presents two partnership policies. Policy A has a $150 daily benefit, a two-year benefit period, a 90-day elimination period, no inflation protection, and an annual premium of $2,400. Policy B has a $200 daily benefit, a four-year benefit period, a 30-day elimination period, 5% compound annual inflation, and an annual premium of $7,800. Frank can afford either premium but dislikes paying more. He asks which policy does a better job of protecting assets if he eventually needs nursing-home care.
1. Which policy better fits Frank's stated goal of Medicaid asset protection? Compare the maximum partnership asset disregard each policy could generate before inflation.
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Policy B is the stronger fit for Frank's stated goal. Under a dollar-for-dollar partnership program, the asset disregard is generally tied to benefits actually paid, up to the policy maximum. Policy A's maximum is $150 per day x 365 days x 2 years, or $109,500, with no inflation growth. Policy B's maximum before inflation is $200 per day x 365 days x 4 years, or $292,000, and the 5% compound inflation rider can increase both the daily benefit and the maximum over time. That means Policy B can generate a much larger Medicaid asset disregard and a longer period of private coverage before Medicaid is needed. Policy A is cheaper, but its shorter benefit period and lack of inflation protection leave more of Frank's assets exposed if he has a long claim or if care costs rise.
2. What suitability and policy-design issues must the agent resolve before recommending either policy?
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The agent should first confirm that each policy is actually partnership-qualified in Frank's state, because not every tax-qualified long-term care policy carries partnership status. At age 73, Frank must be offered compound inflation protection under partnership rules, and any declination should be documented; a no-inflation policy may be permissible only if the state allows the offer-and-decline approach, but it is weaker for asset protection. The agent should also compare home-care coverage, bed-reservation benefits, waiver of premium, nonforfeiture, benefit triggers, and the risk of future premium increases. Affordability is not just the current premium: Frank should understand that $7,800 per year could rise and that paying it may reduce the assets he is trying to protect. Finally, the agent should check whether either policy replaces existing coverage and whether the wife's care needs and income security have been considered.
3. If Frank buys Policy A and later needs five years of care, how would the partnership asset disregard work?
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Policy A would pay up to its maximum lifetime benefit, approximately $109,500 before any inflation growth, and then stop. The partnership asset disregard would equal the amount actually paid by the policy, not the premium paid and not the full five years of care. If the policy paid its full $109,500, that amount would be disregarded in a dollar-for-dollar state Medicaid program, subject to state rules. The remaining cost of the five-year stay would have to be met from Frank's income and assets or Medicaid. Because the policy has no inflation protection, its fixed $150 daily benefit would buy less care over time. The agent should illustrate this gap clearly so Frank understands that Policy A provides limited protection, even though it is less expensive.