Pennsylvania’s Long-term Care Partnership

In 2007, Gov. Rendell signed Act 40 into law establishing a Long-term Care Partnership which offers our state residents an opportunity to provide for their own nursing home care needs while helping to conserve taxpayer assets and an inheritance for their families. It almost sounds too good to be true, but let’s explore it and see what we find.

Many of my clients are referred to me by financial professionals such as accountants, financial planners, investment advisors and stockbrokers. I am grateful for their confidence, and I make every effort to take good care of their clients. A few of my referral sources are focused on addressing the long-term care costs that may be confronted by our mutual clients, and they consult with me about how to maximize their clients’ assets and how to make sure that their client are well taken care of.

These clients are usually financially stable, so they can afford our advice and they often end up better off in the long run. We are able to explore many types of money-making and money-saving ideas for them. When this Long-term Care Partnership idea came along, it sounded like an ideal planning tool to use for clients whose investment assets exceeded $100,000 in value (not including the house and the car), and whose income in retirement exceeded $35,000 for an individual or $50,000 for a couple.

The commonwealth of Pennsylvania, through its Department of Public Welfare (DPW), offers a safety net program for long-term care called Medicaid. If you have read these articles before, you have a working knowledge of Medicaid. You know that in order to qualify for it, you must be ‘impoverished’ in the eyes of the DPW. You know that the financial burden is shifted from the individual to the taxpayers of Pennsylvania. You also know that not every nursing home accepts Medicaid patients, so your options are limited, and you know that there is no money left behind for your children’s inheritance.

The asset protection aspect of these policies is what sells them. If you purchase such a policy and it pays out $100,000 of care costs, you are going to be able to keep $100,000 in assets if you need to apply for Medicaid in the future. This will be good news for your family, since they will be the ones who benefit after you are gone. In fact, I am aware of a couple of cases where a well-heeled adult child is paying for a parent’s long-term care premiums in order to protect those assets for later on.

These policies are not cheap by any means, and they seldom cover all of the costs associated with staying in a nursing home. But if you buy the policy while you are still young (meaning today instead of next year or in 2022) you will have a lower premium. Your agent can show you how much each optional coverage will cost you. For instance, do you want coverage to last two or three years? Shorter-term coverage results in a lower premium. How much coverage do you want per day–$150 or $200? The higher the coverage, the higher the premium.

Make sure that you are taking the proper income tax deduction for your premium payment. Some premiums are paid at the business level and should be written off through the company, while others are payable by the individual policyholder, and he or she should be taking a deduction for it on his or her personal return. This also has an impact later on if you begin to collect benefits under the policy. Some benefits are taxable, while some are not. These are called ‘tax-qualified’ policies.

It has taken the commonwealth and the insurance companies over two years to agree on the exact type of coverage and policy language needed to create these policies, but they are now seeping into the market. You can find them if you look, and soon you will be hearing a lot more about them. If you are like me and already have a long-term care policy in place, call your agent when you get the next bill and ask if they offer the Partnership Policy. If they do, switch your policy over to one of those.

Christopher M. Abernethy has been practicing law in Hampton Township since 1976. He focuses on elder law, which includes wills, trusts, powers of attorney, living wills and probate matters. He also is proficient in all aspects of real estate law and business law. He is a member of the National Association of Elder Law Attorneys and the AARP Legal Services Network. He can be reached at 412-486-6624 or by email at cabernethy@aaylaw.com.