According  to data from 2002 through 2005, elimination periods can range from 0 to at  least 730 days. Partnership Policies Must Include Certain Benefits Not Required of Traditional Policies, and Insurance Companies Cannot Charge Higher Premiums for Asset Protection in Partnership Policies

The four states with Partnership programs require that Partnership  policies include certain benefits—such as inflation protection and  minimum daily benefit amounts—while traditional long-term care  insurance policies may include these benefits but are not generally  required to do so. We found that from 2002 through 2005, a higher  percentage of Partnership policyholders purchased policies with more  extensive coverage compared with policyholders who purchased  traditional long-term care insurance nationally. Insurance Companies Cannot Charge Partnership Policyholders Higher Premiums for Asset Protection, and Premiums for Partnership Policies Must Be Equivalent to Premiums of Traditional Policies That Have Comparable Benefits

According to state officials, the four states with Partnership programs  require Partnership and traditional long-term care insurance policies to  have equivalent premiums if the benefits offered—except for asset  protection—are otherwise comparable. Long-Term Care Insurance Policyholders Are Generally Wealthier than Those Without Such Insurance, and Partnership Policyholders Are Typically Younger than Traditional Long- Term Care Insurance Policyholders

Long-term care insurance policyholders—that is, both Partnership  policyholders and traditional long-term care insurance policyholders—are  more likely to have higher incomes and more assets than people without  long-term care insurance. However, our scenarios suggest that an individual  could self-finance care and delay Medicaid eligibility for about the same  amount of time as he or she would have with a Partnership policy,  although we identify some circumstances that could delay or accelerate  the time to Medicaid eligibility. Based on surveys of Partnership policyholders conducted by state  Partnership programs in California, Connecticut, and Indiana, we estimate  that, in the absence of a Partnership program in their state, 80 percent of  Partnership policyholders would have purchased traditional long-term  care insurance policies instead, while the other 20 percent would have  self-financed their care. To assess the impact Partnership programs may  have on Medicaid savings in the four states with Partnership programs, we  explored, under three different illustrative financing scenarios and using  certain assumptions, how long it would take before an individual using a  Partnership policy would become eligible for Medicaid and how long—in  the absence of a Partnership program—it would take for the same  individual to become eligible for Medicaid using the other two financing  options depicted in the scenarios. However,  the number of policyholders that this applies to is unlikely to be large  enough to offset the number of Partnership policyholders who represent a  potential source of increased Medicaid spending. While we do not have  information about the amount of assets that Partnership policyholders  have at the time they use their benefits, survey data from California and  Connecticut indicate that when Partnership policyholders purchased their  policies, they tended to purchase policies that were equal to or lower than  the value of their household assets. This could result in some savings to Medicaid for those individuals who  purchase Partnership policies instead of transferring assets. Few Partnership Policyholders Are Likely to Become Eligible for Medicaid, Limiting the Impact on Medicaid Expenditures

Although our survey data and scenarios show that about 80 percent of  Partnership policyholders who become eligible for Medicaid are likely to  do so sooner than they otherwise would have without a Partnership  program, we also expect that few Partnership policyholders will actually  become eligible for Medicaid and turn to the program to finance their long- term care. We do not  know why some of the 292 individuals who exhausted their long-term care  insurance benefits did not access Medicaid. Based on our scenario comparison  and survey data, we anticipate that Partnership programs in California,  Connecticut, Indiana, and New York are unlikely to result in savings for  their state Medicaid programs and could result in increased Medicaid  expenditures. HHS commented that the results of our study should not be considered  conclusive because the results do not adequately account for the effect of  estate planning efforts such as asset transfers. However, our scenarios suggest that the savings associated with asset  transfers are likely to offset the potential costs associated with  policyholders who would have purchased traditional long-term care  insurance in the absence of the Partnership programs. At that time, we will send copies of this report to the Secretary  of Health and Human Services, congressional committees, and other  interested parties.
Why GAO Did This Study

Partnership programs allow individuals who purchase Partnership long-term care insurance policies to exempt at least some of their personal assets from Medicaid eligibility requirements. In response to a congressional request, GAO examined (1) the benefits and premium requirements of Partnership policies as compared with those of traditional long-term care insurance policies; (2) the demographics of Partnership policyholders, traditional long-term care insurance policyholders, and people without long-term care insurance; and (3) whether the Partnership programs are likely to result in savings for Medicaid. To examine benefits, premiums, and demographics, GAO used 2002 through 2005 data from the four states with Partnership programs--California, Connecticut, Indiana, and New York--and other data sources. To assess the likely impact on Medicaid savings, GAO (1) used data from surveys of Partnership policyholders to estimate how they would have financed their long-term care without the Partnership program, (2) constructed three scenarios illustrative of the options for financing long-term care to compare how long it would take for an individual to spend his or her assets on long-term care and become eligible for Medicaid, and (3) estimated the likelihood that Partnership policyholders would become eligible for Medicaid based on their wealth and insurance benefits.

What GAO Found

California, Connecticut, Indiana, and New York require Partnership programs to include certain benefits, such as inflation protection and minimum daily benefit amounts. Traditional long-term care insurance policies are generally not required to include these benefits. From 2002 through 2005, Partnership policyholders purchased policies with more extensive coverage than traditional policyholders. According to state officials, insurance companies must charge traditional and Partnership policyholders the same premiums for comparable benefits, and they are not permitted to charge policyholders higher premiums for asset protection. Partnership and traditional long-term care insurance policyholders tend to have higher incomes and more assets at the time they purchase their insurance, compared with those without insurance. In two of the four states, more than half of Partnership policyholders over 55 have a monthly income of at least $5,000 and more than half of all households have assets of at least $350,000 at the time they purchase a Partnership policy. Available survey data and illustrative financing scenarios suggest that the Partnership programs are unlikely to result in savings for Medicaid, and may increase spending. The impact, however, is likely to be small. About 80 percent of surveyed Partnership policyholders would have purchased traditional long-term care insurance policies if Partnership policies were not available, representing a potential cost to Medicaid. About 20 percent of surveyed Partnership policyholders indicate they would have self-financed their care in the absence of the Partnership program, and data are not yet available to directly measure when or if those individuals will access Medicaid had they not purchased a Partnership policy. However, illustrative financing scenarios suggest that an individual could self-finance care--delaying Medicaid eligibility--for about the same amount of time as he or she would have using a Partnership policy, although GAO identified some circumstances that could delay or accelerate Medicaid eligibility. While the majority of policyholders have the potential to increase spending, the impact on Medicaid is likely to be small because few policyholders are likely to exhaust their benefits and become eligible for Medicaid due to their wealth and having policies that will cover most of their long-term care needs. Information from the four states may prove useful to other states considering Partnership programs. States may want to consider the benefits to policyholders, the likely impact on Medicaid expenditures, and the income and assets of those likely to afford long-term care insurance. The Department of Health and Human Services commented on a draft of the report that our study results should not be considered conclusive because they do not adequately account for the effect of estate planning efforts such as asset transfers. While some Medicaid savings could result from people who purchase Partnership policies instead of transferring assets, they are unlikely to offset the costs associated with those who would have otherwise purchased traditional policies.