As baby boomers begin to retire, the want and need for long-term care insurance benefit plans will doubtlessly grow. But employers often have reservations about this expensive and complicated benefit offering.

As of January 2009, more than half of all states (34, to be exact) have new LTC programs that intend to expand the reach and lower the cost of LTC. These opportunities, part of a program called Partnership, have been in existence since the late 1980s, but have only recently begun to make significant inroads in the LTC marketplace, with 19 state plans active by the end of 2008.

"The partnership is the greatest opportunity for the long-term care marketplace to penetrate the millions of cost-conscious consumers who have done some retirement planning and would benefit from this added protection," comments Jesse Slome, the executive director and co-founder of the American Association for Long-Term Care Insurance.

What is partnership?

Partnership plans allow LTC policyholders to add the value of their policy to the minimum asset spend-down required to be eligible for Medicaid benefits, thus protecting personal and family assets in the case that a long-term care policy has been exhausted prior to end of life.

According to a white paper by the Center for Health Care Strategies, authored by Mark R. Meiners, Ph.D. at George Mason University in Virginia:

"The goal of the Long-Term Care Partnership model is to use Medicaid's safety net feature as an incentive for middle income people to buy private long-term care insurance and, by doing so, encourage them to prepare for the risk of needing long-term care. This, in turn, will help delay or avoid the need for Medicaid to pay for their long-term care. In the Partnership model, states offer the guarantee that if benefits under a partnership policy do not sufficiently cover the cost of care, the consumer will qualify for Medicaid under special eligibility rules that allow a prespecified amount of assets to be disregarded. The consumer must also meet other Medicaid eligibility rules."

For example, if the maximum personal asset allowed to qualify in one's state for Medicaid is $50,000, a person with a $300,000 long-term care insurance policy in a partnership state would only have to spend down assets to $350,000 before qualifying for Medicaid.

Someone without a partnership policy or in a nonpartnership state would have to spend down assets to $50,000 before qualifying.

More partnership details

Partnership plans also differ from other long-term care insurance offerings by the manner in which they are bought and utilized.

Plans are typically offered to employers and employees in one of three manners: true group plans, which are generally used by large employers across multiple states; multilife plans, which can be sold to any size employer and are essentially individual policies under a single underwriting umbrella; and individual policies, purchased by the employee through a voluntary worksite benefit or on the open market.

At present, partnership plans are not available in the true group marketplace (see "Partnership not always the answer" below) but are generally available to multilife and individual participants, depending on the state in which the plan is sold and the needs of the purchaser.

Because partnership plans require automatic inflation protection purchase options versus the more commonly seen future purchase-option-style benefit offered under true group-style plans, many brokers and advisers have been slow to bring to the table these offerings.

The typically recognized value in true group-style plans (always combined with future purchase-option-style plan purchasing) is the availability to purchase a guaranteed-issue benefit, wherein all employees, regardless of health status, are able to buy in to a benefit.

Automatic inflation protection plans are in general significantly more expensive at purchase for the employee, but over time they provide a steady amount of benefit and a lower risk of default than future purchase option plans.

However, future purchase option plans, which start out costing just a few hundred dollars each year, can easily spring to tens of thousands of dollars by the time the plan participants reach their 60s, the age at which many first long-term care insurance claims are made.

Benefit advisers and other sellers of LTC benefits are at odds over which method of purchase is actually most beneficial to employees.

Legal issues

No employer wants to be sued over a benefit.

Benefit adviser Brad Winnekins, of Legacy Services in Wisconsin, says that these long-term care plans are a "legal time bomb waiting to happen," but other experts are less aggressive on the topic.

Phil Beiluch, a private actuary based in Connecticut, acknowledges that "some companies have a natural aversion to automatic increase [style plans] because they have a very high potential liability moving forward."

While he recognizes that the "issue of litigation is a growing field," he says that the issue of partnership is only one of "many aspects" that makes long-term care a potential legal pitfall.

"I don't think employers are fully aware of what can go wrong in long-term care," he says, adding that "employees don't necessarily understand that long-term care insurance is insurance to begin with."

Many legal issues, he states, can stem from the fact that employees may mistakenly assume that all claims made on an LTC policy are automatically paid, which is not the case.

Rules and exceptions exist for long-term care coverage, just like any other insurance-based benefit.

Partnership not always the answer

Like most benefits offerings, partnership plans aren't always the right answer for your company.

Employers already offering true group-style plans are often not eligible to buy in to partnership offerings because carriers don't offer the option.

Dennis Healy, vice president of group long-term care for John Hancock, says that his company won't consider offering partnership-style plans until "we get an understanding of how the policies will work" on a nationwide basis.

Right now, he says, state-to-state reciprocity is an issue for many employers, in addition to the fact that 16 states don't currently offer partnership options.

"We want to offer a program where employers can offer equal benefits to employees in all states," he says.

When time comes that plans are available in all 50 states, Healy says that Hancock will probably move forward with a partnership option.

Reciprocity is practiced by most states with partnership plans, but it must be noted, says Meiners, that Medicaid eligibility rules are not reciprocal.

If an employee is planning to retire in Florida, a state that may have stricter Medicaid laws than say, Virginia, the benefits under a partnership plan may be less than if the employee had simply retired in his or her state of employment.

For higher-wealth individuals, partnership-style plans may not be the best use of finances, says Doug Lubenow, president of the Lubenow Agency.

Partnership plans are an excellent way to protect assets of those with $400,000 or $500,000 in assets before those individuals tap into Medicaid, but those with $2 or $3 million in assets may never reach a the minimum assets needed for Medicaid.

What it comes down to, says Slome, is education.

"I always tell [employees] that you serve yourself best by getting information and possibly shopping around."

The end need, says Meiners, is that more work needs to be done on the part of state and national governments to make sure that lingering questions are cleared up before partnership plans can be available to all employees.

Issues of reciprocity, individual state benefits and Medicaid spend-down will remain key factors in determining the attractiveness of partnership options on an individual basis.

LTC claims among younger workers on the rise

Nearly half of all LTC claimants are under 65 at the time of disability, states the third annual Landscape of Long-Term Care report by Unum.

The report dispels the common myth that LTCi is just for elderly individuals or end-of-life care.In fact, the average age of a person filing a Unum claim is 66, according to the study. If the person is under 65, the average age is 53.

"Baby boomers are hitting the age when long-term care is on their minds, many times because they have their parents in mind," said John Noble, director of long-term care. "Our data reveals that baby boomers themselves should think about their own long-term care needs, even if they think it's too soon."

The average claim lasts 31 months, and two-thirds receive in-home care.

According to a recent report by the American Association of Long Term Care Insurance, 180,000 Americans with long-term care insurance policies were paid a total of $3.5 billion in benefits in 2007.