Simple Inflation Sold as Partnership-Qualified
Sandra, age 59, is single with $300,000 in savings. In 2024 she purchased a long-term care policy in a state with a partnership program. The policy has a $200 daily benefit, a three-year benefit period, a 90-day elimination period, and 4% simple annual inflation. The agent told her the policy was partnership-qualified and said, "Simple inflation is fine because you are under 61 and the state only requires some inflation protection, not compound." Sandra had a stroke in 2026 and now needs nursing-home care. A state insurance regulator is reviewing the sale after a complaint from Sandra's sister. Sandra has not yet applied for Medicaid, but she expects to need it eventually and wants to know whether the policy will protect her assets.
1. Is the policy partnership-qualified under federal and model-state standards? Explain.
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The policy is not partnership-qualified if it provides only 4% simple inflation to a buyer who was under age 61. The federal Deficit Reduction Act of 2005 and the NAIC partnership model require compound annual inflation protection for partnership policies sold to individuals under age 61. A simple inflation rider does not satisfy that requirement, even if the state approved the policy form for other purposes. The agent's statement that the state only requires "some inflation" is not accurate for a buyer of Sandra's age. The policy may still be a valid tax-qualified long-term care insurance policy, and it will pay covered benefits, but it should not be treated as partnership-qualified unless the state issued a specific certification or the policy was later exchanged into a compliant form.
2. What are the consequences for Sandra, the insurer, and the agent if the policy is not partnership-qualified?
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Sandra loses the Medicaid asset disregard she was promised. Her policy benefits will still be paid, but the amounts paid will not protect an equal amount of assets in a dollar-for-dollar partnership state. She may have a misrepresentation claim against the agent and possibly the insurer, and she can complain to the state insurance department. The insurer faces market-conduct review, potential fines, and corrective action if it marketed noncompliant policies as partnership-qualified. The agent faces potential licensing discipline, errors-and-omissions liability, and a duty to correct the record. Sandra should not assume the policy is useless; it may still provide meaningful long-term care coverage, but she needs a written determination and an elder-law attorney's review before relying on any Medicaid asset protection.
3. What should Sandra have received at sale, and what remedy should she pursue now?
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At sale, Sandra should have received the required long-term care insurance shopper's guide, an outline of coverage, a disclosure of the policy's partnership status, and a clear explanation of the inflation protection required for partnership qualification. She should have been told in writing whether the policy was partnership-qualified and, if not, why. Now she should request the complete policy, the partnership certification or denial, and the agent's written rationale. She should file a complaint with the state insurance department, preserve the agent's statements, and ask an elder-law attorney whether rescission, replacement, or a damages claim is practical. If she is still insurable, a compliant compound-inflation policy may be possible, but she should compare cost and underwriting before replacing coverage.