This is the accessible text file for GAO report number GAO-07-231 
entitled 'Long-Term Care Insurance: Partnership Programs Include 
Benefits That Protect Policyholders and Are Unlikely to Result in 
Medicaid Savings' which was released on June 12, 2007. 

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Report to Congressional Requesters: 

United States Government Accountability Office: 

GAO: 

May 2007: 

Long-Term Care Insurance: 

Partnership Programs Include Benefits That Protect Policyholders and 
Are Unlikely to Result in Medicaid Savings: 

GAO-07-231: 

GAO Highlights: 

Highlights of GAO-07-231, a report to congressional requesters 

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. 

HHS 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. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-231]. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact John E. Dicken at (202) 
512-7119 or dickenj@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

Partnership Policies Must Include Certain Benefits Not Required of 
Traditional Policies, and Insurance Companies Cannot Charge Higher 
Premiums for Asset Protection in Partnership Policies: 

Compared with Traditional Long-Term Care Insurance Policies, Two of 
Four States Subject Partnership Policies to Additional Review, and All 
Four States Require Additional Agent Training: 

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: 

Partnership Programs Unlikely to Result in Savings for Medicaid Largely 
Because of the Asset Protection Benefit of Partnership Policies: 

Concluding Observations: 

Agency and State Comments and Our Evaluation: 

Appendix I: Data and Methods for Analysis of Long-Term Care Insurance 
Benefits and Demographics: 

Appendix II: Explanation of the Simplifying Assumptions Used in the 
Illustrative Scenarios: 

Appendix III: Comments from the Department of Health & Human Services: 

Appendix IV: Comments from the Four States with Partnership Programs, 
California, Connecticut, Indiana, and New York: 

Appendix V: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Percentage of Partnership and Traditional Long-Term Care 
Insurance Policyholders Purchasing Benefits from 2002 through 2005: 

Table 2: Household Income and Household Asset Distribution among 
Partnership Policyholders and Comparison Populations in Partnership 
States and Nationally: 

Table 3: Demographic Characteristics of Partnership Policyholders and 
Comparison Populations in Partnership States and Nationally: 

Figure: 

Figure 1: Financing of Long-Term Care Nursing Facility Stays Under 
Three Scenarios: 

Abbreviations: 

ADL: activities of daily living: 
ACS: American Community Survey: 
CBO: Congressional Budget Office: 
CMS: Centers for Medicare & Medicaid Services: 
DOI: Department of Insurance: 
DRA: Deficit Reduction Act of 2005: 
HHS: Department of Health and Human Services: 
HIPAA: Health Insurance Portability and Accountability Act of 1996: 
HRS: Health and Retirement Study: 
IADL: instrumental activities of daily living: 
NAIC: National Association of Insurance Commissioners: 
OBRA '93: Omnibus Budget Reconciliation Act of 1993: 
UDS: Uniform Data Set: 

United States Government Accountability Office: 
Washington, DC 20548: 

May 11, 2007: 

The Honorable Max Baucus: 
Chairman: 
The Honorable Charles E. Grassley: 
Ranking Member: 
Committee on Finance: 
United States Senate: 

The Honorable John D. Rockefeller, IV: 
United States Senate: 

In 2004, national spending on long-term care, which includes care 
provided in nursing facilities, totaled $193 billion and nearly half of 
that was paid for by Medicaid, the joint federal-state program that 
finances medical services for certain low-income adults and children. 
In contrast, private insurance paid for about $14 billion worth of long-
term care--about 7 percent of the total cost. The demand for this type 
of care is likely to increase as the proportion of those in the 
population age 65 and older--those most likely to need long-term care-
-increases. With Medicaid financing nearly half of the long-term care 
costs nationwide, policymakers are concerned that, without changes in 
how long-term care is financed, the growing demand for this type of 
care will continue to strain the resources of federal and state 
governments. 

In the late 1980s the Robert Wood Johnson Foundation provided start-up 
funds for programs in eight states--California, Connecticut, Indiana, 
Massachusetts, New Jersey, New York, Oregon, and Wisconsin--aimed at 
helping to shift some of the responsibility for financing long-term 
care from Medicaid to private long-term care insurance. Four of the 
states that received funds--California, Connecticut, Indiana, and New 
York--established the programs. These four state-run long-term care 
programs, which are known as Partnership programs, encourage 
individuals to purchase long-term care insurance by providing an 
incentive--specifically, allowing those who purchase long-term care 
insurance policies through the program to exempt some or all of their 
personal assets from Medicaid eligibility requirements should the 
policyholders exhaust their long-term care insurance benefits and need 
to continue financing their long-term care. Without the exemption, 
before individuals could receive Medicaid benefits they would typically 
have to spend their assets on their long-term care until the assets met 
or fell below certain Medicaid thresholds. Medicaid does not allow for 
asset protection for long-term care insurance policies purchased 
outside of Partnership programs.[Footnote 1] In order to implement 
their Partnership programs, the four states with Partnership programs 
had to obtain approval from the Centers for Medicare & Medicaid 
Services (CMS), the agency within the Department of Health and Human 
Services (HHS) that oversees Medicaid, and amend their state Medicaid 
plans to allow them to exempt the assets of Partnership program 
participants from Medicaid eligibility requirements.[Footnote 
2],[Footnote 3] 

Since the early 1990s, the treatment of Partnership programs under 
federal law has changed. Although a number of states established, or 
were authorized to establish, programs prior to the enactment of the 
Omnibus Budget Reconciliation Act of 1993 (OBRA '93), OBRA '93 
prohibited additional states from establishing similar programs. The 
legislation was enacted, in part, because of concerns about potential 
costs to Medicaid, but allowed California, Connecticut, Indiana, and 
New York to maintain their programs.[Footnote 4],[Footnote 5] More 
recently, the Deficit Reduction Act of 2005 (DRA) authorized all states 
to establish Partnership programs that meet certain criteria and 
required the original 4 participating states to maintain the existing 
consumer protections in their Medicaid plans. DRA provisions are 
intended, in part, to allow states to provide an incentive for 
individuals to take responsibility for their own long-term care needs 
rather than relying on Medicaid. According to the National Association 
of Health Underwriters, prior to the enactment of DRA, there was 
legislative activity in 19 additional states to begin development of a 
Partnership program. As of October 2006, the only states with active 
Partnership programs were the original 4 states: California, 
Connecticut, Indiana, and New York.[Footnote 6] However, HHS indicated 
that as of February 2007, CMS had approved Partnership program state 
plan amendments in 6 states: Florida, Georgia, Idaho, Minnesota, 
Nebraska, and Virginia. Although the program appears to be expanding 
beyond the original 4 states, concerns about the potential cost to 
Medicaid of expanding the program remain an issue. In 2005, the 
Congressional Budget Office (CBO) estimated that repealing the 
moratorium on new Partnership programs could increase Medicaid spending 
by $86 million between 2006 and 2015.[Footnote 7] 

States are responsible for overseeing Partnership programs and 
regulating the Partnership programs as well as the traditional long- 
term care insurance policies sold in their states. As more states 
consider establishing Partnership programs, there is interest, on the 
part of Congress and others, in understanding how the four states with 
Partnership programs designed and regulate their Partnership programs, 
who purchases Partnership policies, and how these programs will impact 
Medicaid financially. 

You asked us to analyze the experience of the four states with 
Partnership programs. In August 2005, we provided you with a briefing, 
which summarized aspects of the design of these Partnership programs 
and included demographic information on Partnership 
policyholders.[Footnote 8] In this report, we updated our briefing 
information and provided a more detailed analysis of the Partnership 
programs. Specifically, we examined (1) the benefits and premium 
requirements of Partnership policies as compared with those of 
traditional long-term care insurance policies, including information on 
benefits purchased by policyholders; (2) the extent to which states 
oversee Partnership policies as compared with their oversight of 
traditional long-term care insurance policies; (3) the demographics, 
including asset and income levels, of Partnership policyholders, 
traditional long-term care insurance policyholders, and people without 
long-term care insurance; and (4) whether the Partnership programs are 
likely to result in savings for Medicaid. 

To compare the benefits and premium requirements of Partnership and 
traditional long-term care insurance policies, we reviewed state 
regulations, and interviewed Partnership program officials and 
department of insurance (DOI) officials in each of the four states with 
Partnership programs-California, Connecticut, Indiana, and New York. To 
compare the benefits purchased by Partnership policyholders and 
traditional long-term care insurance policyholders, we obtained data 
from 2002 through 2005 from two sources. Our data source for benefits 
purchased by Partnership policyholders was the Uniform Data Set (UDS)-
-a data set with information on Partnership policyholders compiled by 
officials in each of the four states with Partnership programs from 
data provided by participating insurers.[Footnote 9] Our data source 
for benefits purchased by traditional long-term care insurance 
policyholders was from a survey we conducted of five of the largest 
long-term care insurance companies in the individual long-term care 
insurance market.[Footnote 10] 

To examine the extent to which states oversaw Partnership policies 
compared with state oversight of traditional long-term care insurance 
policies, we reviewed state regulations and Partnership program 
documents, and interviewed officials from Partnership programs, long- 
term care insurance companies, and each Partnership state's DOI, the 
entities that are responsible for regulating insurance policies, 
including long-term care insurance policies, that are sold in the 
states. We reviewed state regulations, Partnership program documents, 
and conducted interviews about how training requirements for insurance 
agents who sell Partnership policies compared with training 
requirements for agents who sell traditional long-term care insurance 
policies. 

To examine the demographics, including income and assets levels, of 
Partnership policyholders, traditional long-term care insurance 
policyholders, and individuals without long-term care insurance, we 
used data from three sources. First, to calculate the household income 
and assets of Partnership policyholders, we used available survey data 
from a sample of Partnership policyholders in California and 
Connecticut. We restricted our analysis to the income and asset data 
from these two states because Indiana's data were not sufficiently 
detailed to include in our analysis, and New York was not able to 
provide us with data from recent years. We combined multiple years of 
these data in order to increase the sample size.[Footnote 11] To 
estimate the household income of individuals without insurance in 
California and Connecticut, we used data from the American Community 
Survey (ACS) for 2004 published by the U.S. Census Bureau. Finally, we 
used national data from the Health and Retirement Study (HRS) for 2004, 
to compare household income and household assets for those individuals 
with traditional long-term care insurance and those without long-term 
care insurance.[Footnote 12] The HRS is a national survey sponsored by 
the National Institute on Aging and conducted by the University of 
Michigan of individuals over the age of 50.[Footnote 13] The HRS 
collected information about retirement, health insurance, savings, and 
other issues confronting the elderly. To examine the age, marital 
status, and gender of Partnership policyholders, traditional long-term 
care insurance policyholders, and individuals without long-term care 
insurance, we used data from the UDS and the HRS. 

To examine whether the Partnership programs in the four states are 
likely to result in savings for Medicaid, we assessed (1) available 
state survey data of Partnership policyholders and (2) the options an 
individual has for financing long-term care and the time it would take 
for the individual to become eligible for Medicaid under three 
illustrative scenarios. We used the illustrative scenarios because the 
Partnership programs in the four states have only been operating since 
the early 1990s, and as yet there are no available data describing when 
or if Partnership policyholders would have accessed Medicaid. As a 
result, there are insufficient data available to directly measure 
whether the Partnership programs are associated with increased or 
decreased Medicaid spending. We used available survey data in 
California, Connecticut, and Indiana to determine what Partnership 
policyholders report they would have done to finance their long-term 
care needs if there had not been a Partnership program in their 
state.[Footnote 14] In addition, we assessed three scenarios that 
represent the three main options an individual has for financing long- 
term care: financing using a Partnership policy, financing using a 
traditional long-term care policy, and self-financing without any long- 
term care insurance. The latter two scenarios describe the financing 
options that a Partnership policyholder could use if the Partnership 
programs did not exist. We used the three scenarios to explore how long 
it would likely take before the individual depicted in our scenarios 
would become eligible for Medicaid with a Partnership policy and--in 
the scenarios in which Partnership programs did not exist--with the 
other two financing options. In the scenarios, if, in the absence of a 
Partnership program, an individual using a traditional long-term care 
insurance policy or relying on self-financing is likely to become 
eligible for Medicaid sooner than the same individual would have using 
a Partnership policy, we consider the Partnership programs to be a 
potential source of savings for Medicaid. In contrast, if the same 
individual delays Medicaid eligibility using a traditional long-term 
care insurance policy or self-financing, when compared with the time it 
would take the individual to become eligible for Medicaid using a 
Partnership policy, we consider the Partnership program to be a 
potential source of increased spending for Medicaid. To develop our 
scenarios, we made several simplifying assumptions. These include the 
following: 

* The individual depicted in the scenarios has $300,000 in assets, and 
in two of our scenarios a long-term care insurance policy worth 
$210,000-
-assets and benefits that are typical of many individuals with long- 
term care insurance--and the individual receives long-term care in a 
nursing facility with costs for a year of care of $70,000, about equal 
to average nursing facility costs nationwide in 2004. 

* The individual has assets that are no less than the value of the 
individual's Partnership policy--that is, the individual does not 
overinsure his or her assets. 

* The individual is unmarried. While most Partnership policyholders are 
married at the time they purchase a Partnership policy, they are 
unlikely to require long-term care for many years, and their marital 
status can change. Most individuals who are admitted to a nursing 
facility are unmarried. 

Where possible, we use data from surveys of Partnership policyholders 
to support our assumptions. We also explored whether adjusting the 
assumptions changed the conclusions we could draw. Although our 
scenarios represent the choices facing a single individual, the results 
of this analysis are applicable beyond this individual. For example, 
the relative impact on Medicaid spending across the scenarios is 
independent of the amount of assets owned by the individual or the 
level of the individual's insurance coverage. 

As part of our efforts to examine whether the Partnership programs are 
likely to result in savings for Medicaid, we also examined the 
likelihood that the population of Partnership policyholders will ever 
become eligible for Medicaid. To assess this likelihood, we examined 
the long-term care insurance benefits and income of Partnership 
policyholders. We also assessed the number of people with Partnership 
policies who accessed Medicaid as of October 2006. 

Based on discussions with state officials and reviewing documentation 
on uniformly collected insurer data and surveys of policyholders, we 
determined that the information we used was sufficiently reliable for 
our purposes. We also examined reports on the Partnership program from 
the CBO, the Congressional Research Service, and other research 
organizations. Appendix I provides information on the data and methods 
used for our analyses of long-term care insurance benefits, 
policyholder income, assets, age, gender, and marital status. Appendix 
II provides more information about the illustrative scenarios, the 
simplifying assumptions underlying the scenarios, and the effect on our 
analysis of adjusting these assumptions. We conducted our work from 
September 2005 through May 2007 in accordance with generally accepted 
government auditing standards. 

Results in Brief: 

In the four states with Partnership programs, Partnership policies must 
include certain benefits not generally required of traditional long- 
term care insurance policies, and insurance companies cannot charge 
higher premiums for asset protection in Partnership policies. 
Partnership policies must 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 
generally not required to do so. Partnership policies include these 
benefits in order to increase the likelihood that Partnership 
policyholders will have sufficient long-term care insurance coverage to 
pay for a significant portion of their long-term care. For example, 
Partnership policies must include inflation protection, which increases 
the amount a policy pays over time to account for increases in the cost 
of care, and minimum daily benefit amounts, which are set at levels 
designed to cover a significant portion of the costs of an average day 
in a nursing facility. Though traditional long-term care insurance 
policyholders are able to purchase most of the same benefits as 
Partnership policyholders, in comparing these two groups we found that 
a higher percentage of Partnership policyholders purchased policies 
from 2002 through 2005 with more extensive coverage--for example, 
higher levels of inflation protection and coverage for care in both 
nursing facility and home and community-based care settings. Officials 
in states with Partnership programs told us that companies selling long-
term care insurance are not permitted to charge Partnership 
policyholders higher premiums for the asset protection benefit-- 
Partnership and traditional long-term care insurance policies with 
otherwise comparable benefits must have equivalent premiums. However, 
Partnership policies are likely to have higher premiums because they 
are required to have inflation protection and other benefits that are 
not required for traditional long-term care insurance policies. 

According to state officials, compared with traditional long-term care 
insurance policies, Partnership policies in two Partnership states are 
subject to additional review, and in all four Partnership states, 
insurance agents who sell Partnership policies are subject to 
additional state training requirements compared with agents who sell 
only traditional long-term care policies. While all long-term care 
insurance policies are reviewed by the DOI in each state, Partnership 
policies in California and Connecticut are also reviewed by Partnership 
program offices. This additional review is designed by these states to 
ensure that the Partnership policies that are issued meet all specific 
Partnership regulatory requirements, and the insurance companies 
issuing these policies meet the data reporting and other administrative 
requirements. Before they can sell Partnership policies, long-term care 
insurance agents are required by each of the four Partnership states to 
undergo training specific to the state's Partnership program, in 
addition to the training that is required for those who sell 
traditional long-term care insurance. This specialized training 
typically provides information on long-term care planning, Medicaid, 
Medicare, the specific benefits required by the state's Partnership 
program, and how policies sold through the program differ from 
traditional long-term care insurance policies. 

Partnership and traditional long-term care insurance policyholders tend 
to be relatively wealthy with higher incomes and more assets, compared 
with those without insurance. At the time they purchased their 
Partnership policies, more than half of Partnership policyholders over 
55 in California and Connecticut had monthly household incomes of 
$5,000 or greater, and more than half of all households had assets of 
$350,000 or greater. Partnership policyholders in the four states with 
Partnership programs are also younger on average than traditional long- 
term care insurance policyholders. In addition, a higher percentage of 
Partnership and traditional long-term care insurance policyholders are 
married rather than unmarried, and female rather than male. 

Available survey data from three states with Partnership programs and 
our three illustrative financing scenarios together suggest that the 
Partnership programs are unlikely to result in savings for Medicaid and 
may result in increased Medicaid spending. Based on surveys of 
Partnership policyholders 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 a 
traditional long-term care insurance policy. Our long-term care 
financing scenarios suggest that it takes longer for an individual with 
a traditional long-term care insurance policy to become eligible for 
Medicaid than it would take the same individual to become eligible for 
Medicaid if he or she owned a Partnership policy. Therefore, the 80 
percent of surveyed Partnership policyholders may represent a potential 
source of increased spending for Medicaid, as Medicaid is likely to 
begin paying for the long-term care of these policyholders sooner than 
if they had held traditional long-term care insurance policies instead. 
The survey data also indicate that the remaining 20 percent of surveyed 
policyholders would not have purchased any long-term care insurance if 
Partnership programs did not exist. Data are not yet available to 
directly measure when or if these individuals will access Medicaid had 
they not purchased a Partnership policy. However, our scenarios suggest 
that an individual who self-finances his or her long-term care without 
any long-term care insurance is likely to become eligible for Medicaid 
at about the same time as the individual would using a Partnership 
policy, though there were some circumstances that could accelerate or 
delay the individual's time to Medicaid eligibility. While the majority 
of Partnership policyholders have the potential to increase spending, 
we also anticipate that the impact of these programs is likely to be 
small because few policyholders will become eligible. Partnership 
policyholders tend to have incomes that exceed Medicaid eligibility 
thresholds and insurance benefits that cover most of their long-term 
care needs. 

With DRA authorizing all states to implement Partnership programs, 
information on the Partnership policies and policyholders from the four 
states with Partnership programs may prove useful to other states 
considering implementing such programs. States may want to consider the 
benefits to Partnership policyholders, the likely impact on Medicaid 
expenditures, and the incomes and assets of those likely to be able to 
afford long-term care insurance. 

We received comments on a draft of this report from HHS and state 
officials from California, Connecticut, Indiana, and New York. HHS 
commented that our study results should not be considered conclusive 
and the simplified scenarios were flawed because they did not 
adequately account for the effect of asset transfers. HHS also noted 
that our data sources were unlikely to yield accurate data on asset 
transfers and criticized the report for not incorporating a review of 
the literature on this issue and the analyses conducted by the four 
states with Partnership programs. The four states disagreed with our 
conclusion that the Partnership programs are unlikely to result in 
Medicaid savings, and like HHS, commented that our scenarios did not 
adequately account for the impact of asset transfers. California, 
Connecticut, and New York objected to our methodology for estimating 
the financial impact of the program on Medicaid. California and 
Connecticut suggested that our analysis should have included results 
from two Partnership policyholder survey questions that they consider 
in their own analysis of the Partnership program. 

We maintain that the evidence suggests that the Partnership program is 
unlikely to result in savings for Medicaid, despite limited data and 
program experience. As discussed in our draft report, some savings to 
Medicaid could be associated with individuals who would have 
transferred their assets and become eligible for Medicaid sooner in the 
absence of the Partnership program. However, we noted that these 
savings are unlikely to offset the potential costs associated with 
policyholders who would have purchased traditional long-term care 
insurance in the absence of the Partnership programs. We did not 
provide a review of the literature on asset transfers because--as we 
previously noted in our March 2007 report on the subject--the evidence 
on the transfer of assets to become eligible for Medicaid coverage for 
long-term care is generally limited.[Footnote 15] However, in response 
to HHS' comments, we have amended our draft report to make the 
discussion of asset transfers more prominent in the body of our report 
and to include reference to the 2007 GAO study. We also maintain that 
our methodology for estimating the financial impact of the program on 
Medicaid is sound and disagree with California and Connecticut 
regarding the appropriateness of using the two survey questions. 
Specifically, by relying on the responses from these questions, the 
method California, Connecticut, and Indiana use to evaluate Medicaid 
costs underestimates the percentage of people who would have purchased 
traditional policies in the absence of the Partnership program, while 
their method of evaluating Medicaid savings overestimates the 
percentage of people who would transfer assets. 

Background: 

Long-term care comprises services provided to individuals who, because 
of illness or disability, are generally unable to perform activities of 
daily living (ADL)--such as bathing, dressing, and getting around the 
house--for an extended period of time.[Footnote 16] These services can 
be provided in various settings, such as nursing facilities, an 
individual's own home, or the community.[Footnote 17] The typical 65- 
year-old has about a 70 percent chance of needing long-term care 
services in his or her life.[Footnote 18] Long-term care can be 
expensive, especially when provided in nursing facilities. In 2005, the 
average cost of a year of nursing facility care was about 
$70,000.[Footnote 19] In 1999, the most recent year for which data were 
available, the average length of stay in a nursing facility was between 
2 and 3 years.[Footnote 20] 

Long-Term Care Insurance: 

Long-term care insurance is used to help cover the cost associated with 
long-term care. Individuals can purchase long-term care insurance 
policies directly from insurance companies, or through employers or 
other groups. The number of long-term care insurance policies sold has 
been small-about 9 million as of 2002, the most recent year for which 
data were available. About 80 percent of these policies were sold 
through the individual insurance market and the remaining 20 percent 
were sold through the group market. 

Long-term care insurance companies generally structure their long-term 
care insurance policies around certain types of benefits and related 
options. 

* A policy with comprehensive coverage pays for long-term care in 
nursing facilities as well as for care in home and community settings, 
while a policy with coverage for home and community-based settings pays 
for care only in these settings. 

* A daily benefit amount specifies the amount a policy will pay on a 
daily basis toward the cost of care, while a benefit period specifies 
the overall length of time a policy will pay for care. Data from 2002 
through 2005 show that the maximum daily benefit amounts can range from 
less than $100 to several hundred dollars per day, while benefit 
periods can range from 1 year to lifetime coverage.[Footnote 21] 

* A policy's elimination period establishes the length of time a 
policyholder who has begun to receive long-term care has to wait before 
his or her insurance will begin making payments towards the cost of 
care. According to data from 2002 through 2005, elimination periods can 
range from 0 to at least 730 days.[Footnote 22] 

* Inflation protection increases the maximum daily benefit amount 
covered by a policy, and helps ensure that over time the daily benefit 
remains commensurate with the costs of care. 

There can be a substantial gap between the time a long-term care 
insurance policy is purchased and the time when policyholders begin 
using their benefits, and the costs associated with long-term care can 
increase significantly during this time. A typical gap between the time 
of purchase and the use of benefits is 15 to 20 years: the average age 
of all long-term care insurance policyholders at the time of purchase 
is 63, and in general policyholders begin using their benefits when 
they are in their mid-70s to mid-80s. Usually, automatic inflation 
protection increases the benefit amount by 5 percent annually on a 
compounded basis. A policy with automatic 5 percent compound inflation 
protection and a $150 per day maximum daily benefit in 2006 would be 
worth approximately $400 per day 20 years later. Another means to 
protect against inflation is a future purchase option. This option 
allows the consumer to increase the dollar amount of coverage every few 
years at an extra cost. Some future purchase options do not allow 
consumers to purchase extra coverage once they begin receiving their 
insurance benefit and the opportunity to purchase extra coverage may be 
withdrawn should the consumer decline a predetermined number of premium 
increases. A policy with a future purchase option may be less expensive 
initially than a policy with compound inflation protection. However, 
over time the policy with a future purchase option may become more 
expensive than a policy with compound inflation. 

Without inflation protection, policyholders might purchase a policy 
that covers the current cost of long-term care but find, many years 
later, when they are most likely to need long-term care services, that 
the purchasing power of their coverage has been reduced by inflation 
and that their coverage is less than the cost of their care. For 
example, if the cost of a day in a nursing facility increases by 5 
percent every year for 20 years, a nursing facility that costs $150 per 
day in 2006 would cost about $400 per day 20 years later in 2026. A 
policy purchased in 2006 with a daily benefit of $150 without inflation 
protection would pay $150 per day--or 38 percent--of the daily cost of 
about $400 in 2026. The remaining $250 of the daily cost of the nursing 
facility care would have to be paid by the policyholder. 

Long-term care insurance policies may also include other benefits or 
options. For example, policies can offer coverage for home care at 
varying percentages of the maximum daily benefit amount. Some policies 
include features in which the policy returns a portion of the premium 
payments to a designated third party if the policyholder dies. Some 
policies provide coverage for long-term care provided outside of the 
United States or offer care-coordination services that, among other 
things, provide information about long-term care services to the 
policyholder and monitor the delivery of long-term care services. 

Many factors impact the premiums individuals pay for long-term care 
insurance. Notably, long-term care insurance companies typically charge 
higher premiums for policies with more extensive benefits. In general, 
policies with comprehensive coverage have higher premiums than policies 
without such coverage, and policyholders pay higher premiums the higher 
their maximum daily benefit amounts, the longer their benefit periods, 
the greater their inflation protection, and the shorter their 
elimination periods. For example, in Connecticut, if a 55-year-old man 
decided to buy a 1-year, $200 per day comprehensive coverage policy, in 
2005 it would have cost him about $1,000 less per year than a 
comparable 3-year policy. Similarly, the age of an applicant also 
impacts the premium, as premiums typically are more expensive the older 
the policyholder at the time of purchase. For example, in Connecticut, 
a 55-year-old purchasing a 3-year, $200 per day comprehensive coverage 
policy in 2005 would pay about $2,500 per year, whereas a 70-year-old 
purchasing the same policy would pay about $5,900 per year. Health 
status may also affect premiums. Insurance companies take into account 
the health status of an applicant to evaluate the risk that he or she 
will access long-term care services. If an applicant has a medical 
condition that increases the likelihood of the applicant using long- 
term care services, but does not automatically disqualify the applicant 
from purchasing insurance, the applicant may receive a substandard 
rating from an insurance company, which may result in a higher 
premium.[Footnote 23] 

Long-Term Care Insurance Regulation: 

Regulation of the insurance industry, including those companies selling 
long-term care insurance, is a state function. Those who sell long-term 
care insurance must be licensed by each state in which they sell 
policies, and the policies sold must be in compliance with state 
insurance laws and regulations. These laws and regulations can vary but 
their fundamental purpose is to establish consumer protections that are 
designed to ensure that the policies' provisions comply with state law, 
are reasonable and fair, and do not contain major gaps in coverage that 
might be misunderstood by consumers and leave them unprotected. 

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) 
specified conditions under which long-term care insurance benefits and 
premiums would receive favorable federal income tax treatment.[Footnote 
24] Individuals who purchase policies that comply with HIPAA 
requirements, which are therefore "tax-qualified," can itemize their 
long-term care insurance premiums as deductions from their taxable 
income along with other medical expenses, and can exclude from gross 
income insurance company proceeds used to pay for long-term care 
expenses. Under HIPAA, tax-qualified plans must begin coverage when a 
person is certified as: needing substantial assistance with at least 
two of the six ADLs for at least 90 days due to a loss of functional 
capacity, having a similar level of disability, or requiring 
substantial supervision because of a severe cognitive impairment. HIPAA 
also requires that a policy comply with certain provisions of the 
National Association of Insurance Commissioners' (NAIC) Long-Term Care 
Insurance Model Act and Regulation adopted in January 1993. This model 
act and regulation established certain consumer protections that are 
designed to prevent insurance companies from (1) not renewing a long- 
term care insurance policy because of a policyholder's age or 
deteriorating health, and (2) increasing the premium of an existing 
policy because of a policyholder's age or claims history. In addition, 
in order for a long-term care insurance policy to be tax-qualified, 
HIPAA requires that a policy offer inflation protection. The NAIC, 
which represents insurance regulators from all states, reported in 2005 
that 41 states based their long-term care insurance regulations on the 
NAIC model, 7 based their regulations partially on the model, and 3 did 
not follow the model. 

Medicaid: 

Medicaid is the primary source of financing for long-term care services 
in the United States. In 2004, almost one-third of the total $296 
billion in Medicaid spending was for long-term care. Some health care 
services, such as nursing facility care, must be covered in any state 
that participates in Medicaid. States may choose to offer other 
optional services in their Medicaid plans, such as personal 
care.[Footnote 25] 

Medicaid coverage for long-term care services is most often provided to 
individuals who are aged or disabled. To qualify for Medicaid coverage 
for long-term care, these individuals must meet both functional and 
financial eligibility criteria. Functional eligibility criteria are 
established by each state and are generally based on an individual's 
degree of impairment, which is measured in terms of the level of 
difficulty in performing the ADLs and IADLs. To meet the financial 
eligibility criteria, an individual cannot have assets or income that 
exceed thresholds established by the states and that are within 
standards set by the federal government. Generally, the value of an 
individual's primary residence and car, as well as a few other personal 
items, are not considered assets for the purpose of determining 
Medicaid eligibility.[Footnote 26] Individuals with high medical costs 
and whose income exceeds state thresholds can "spend down" their income 
on their long-term care, which may bring their income below the state- 
determined income eligibility limit. In all four states with 
Partnership programs, for the purpose of obtaining Medicaid 
eligibility, individuals are allowed to deduct medical expenses, 
including those for long-term care, in order to bring their incomes 
below the state-determined thresholds. 

In order to meet Medicaid's eligibility requirements, some individuals 
may choose to divest themselves of their assets--for example, by 
transferring assets to their spouses or other family members.[Footnote 
27] However, those who transfer assets for less than fair market value 
during a specified "look-back" period--a period of time before an 
individual applies for Medicaid during which the program reviews asset 
transfers--may incur a penalty, that is, a period during which they are 
ineligible for Medicaid coverage for long-term care services. Evidence 
of the extent to which individuals transfer assets for less than fair 
market value to become financially eligible for Medicaid coverage for 
long-term care is generally limited and often based on anecdote. 
However, our March 2007 report on asset transfers suggests that the 
incidence of asset transfers is low among nursing home residents 
covered by Medicaid.[Footnote 28] Nationwide, about 12 percent of 
Medicaid-covered elderly nursing home residents reported transferring 
cash during the 4 years prior to nursing home entry, and the median 
amount transferred was very small ($1,239). The percentage of nursing 
home residents not covered by Medicaid who transferred cash was about 
twice that of Medicaid-covered nursing home residents. However, the 
median amount of cash transferred as reported by non-Medicaid covered 
residents and Medicaid-covered residents did not vary greatly.[Footnote 
29] In addition to the nationwide analysis, our report summarized an 
analysis of a sample of approved Medicaid nursing home applicants in 
three states who generally applied to Medicaid in 2005 or before, and 
found that about 10 percent of applicants had transferred assets for 
less than the fair market value during the 3-year look-back period 
before Medicaid eligibility began. The median amount transferred was 
about $15,000. DRA tightened the requirements on Medicaid applicants 
transferring assets by extending the look-back period for all asset 
transfers from 3 to 5 years. In addition, DRA changed the beginning 
date of the penalty period. Prior to enactment of DRA, the penalty 
period started on the first day of the month during or after which 
assets were transferred. DRA changed this so that the penalty period 
now begins on the first day of the month when the asset transfer 
occurred, or the date on which the individual is eligible for medical 
assistance under the state plan, and is receiving institutional care 
services that would be covered by Medicaid were it not for the 
imposition of the penalty period, whichever is later. The extension of 
the look-back period and the redefinition of the penalty period may 
reduce transfers of assets. 

Long-Term Care Partnership Programs: 

The Partnership programs are public-private partnerships between states 
and private long-term care insurance companies. Established in 1987 as 
programs funded through the Robert Wood Johnson Foundation, the 
programs are designed to encourage individuals, especially moderate 
income individuals, to purchase private long-term care insurance in an 
effort to reduce future reliance on Medicaid for the financing of long- 
term care. As of October 2006, the original four Partnership programs 
in California, Connecticut, Indiana, and New York remained the only 
active Partnership programs.[Footnote 30] 

Partnership programs attempt to encourage individuals to purchase 
private long-term care insurance by offering them the option to exempt 
some or all of their assets from Medicaid spend-down requirements. 
However, Partnership policyholders are still required to meet Medicaid 
income eligibility thresholds before they may receive Medicaid 
benefits. In the four states with Partnership programs, those who 
purchase long-term care insurance Partnership policies generally must 
first use those benefits to cover the costs of their long-term care 
before they begin accessing Medicaid.[Footnote 31] In 2006, there were 
about 190,000 active Partnership policies, out of the approximately 
218,000 Partnership policies that had been sold since the inception of 
the Partnership programs.[Footnote 32],[Footnote 33] Between September 
2005 when we last reported on the Partnership programs, and August 
2006, the number of Partnership policies in the four states combined 
increased by about 10 percent.[Footnote 34] 

The four states with Partnership programs vary in how they protect 
policyholders' assets. The Partnership programs in California, 
Connecticut, Indiana, and New York have dollar-for-dollar models, in 
which the dollar amount of protected assets is equivalent to the dollar 
value of the benefits paid by the long-term care insurance policy. For 
example, a person purchasing a long-term care dollar-for-dollar 
insurance policy with $300,000 in coverage would have $300,000 of 
assets protected if he or she were to exhaust the long-term care 
insurance benefits and apply for Medicaid. However, New York's program 
also offers total protection. That is, those who purchase a 
comprehensive long-term care insurance policy, covering a minimum of 3 
years of nursing facility care or 6 years of home care, or some 
combination of the two, can protect all their assets at the time of 
Medicaid eligibility determination. In Indiana, in addition to the 
dollar-for-dollar models, the Partnership program offers a hybrid model 
that allows purchasers to obtain dollar-for-dollar protection up to a 
certain benefit level as defined by the state; all policies with 
benefits above that threshold provide total asset protection for the 
purchaser. 

Under DRA, any state that implements a Partnership program must ensure 
that the policies sold through that program contain certain benefits, 
such as inflation protection.[Footnote 35],[Footnote 36] DRA also 
requires that Partnership policies provide dollar-for-dollar asset 
protection. Insurers are not allowed to offer Partnership policies that 
provide the total asset protection feature found in Partnership 
policies in New York and Indiana.[Footnote 37] DRA also requires 
Partnership policies to include consumer protections contained in the 
NAIC Long-Term Care Insurance Model Act and Regulation as updated in 
October 2000. DRA established specific requirements for Partnership 
policies that do not apply to traditional long-term care insurance 
policies sold in the Partnership states, such as inflation protection 
and dollar-for-dollar asset protection. DRA prohibits states from 
creating other requirements for Partnership policies that do not also 
apply to traditional long-term care insurance policies in the four 
states with Partnership policies. The Partnership programs in 
California, Connecticut, Indiana, and New York, which were implemented 
before DRA, are not subject to these specific requirements, but in 
order for those programs to continue, they must maintain consumer 
protection standards that are no less stringent than those that applied 
as of December 31, 2005. 

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. Compared with policyholders of traditional long-term 
care insurance policies, a higher percentage of Partnership 
policyholders purchased policies with more extensive coverage. In the 
four states, insurance companies are not allowed to charge 
policyholders higher premiums for policies with asset protection, and 
Partnership and traditional long-term care insurance policies with 
comparable benefits are required to have equivalent premiums. 

The Four States Require Partnership Policies to Include Certain 
Benefits Not Required for Traditional Long-Term Care Insurance 
Policies: 

In general, the four states with Partnership programs require that 
Partnership policies sold in their states include certain benefits that 
are not required for those states' traditional long-term care insurance 
policies. A state DOI official told us that they have these benefit 
requirements for Partnership policies in order to protect policyholders 
by helping to ensure that benefits are sufficient to cover a 
significant portion of their anticipated long-term care costs and to 
protect the Medicaid program by reducing the likelihood that 
policyholders will exhaust their benefits and become eligible for 
Medicaid. 

In addition to asset protection, which by definition Partnership 
policies include, all four states require Partnership policies to 
include inflation protection.[Footnote 38] Three of the four 
Partnership states--California, Connecticut, and New York--require that 
Partnership policies include inflation protection that automatically 
increases benefit amounts by 5 percent annually on a compounded 
basis.[Footnote 39] The four states do not require traditional long-
term care insurance policies to include inflation protection, though 
insurance companies in these states are required to offer inflation 
protection as an optional benefit. While policies with inflation 
protection may include coverage that is more commensurate with expected 
future costs of care, these policies can be two or three times as 
expensive as policies without inflation protection. For example, in 
2005 a long-term care insurance policy with a $200 daily benefit, a 3-
year benefit period, and inflation protection cost about $3,000 per 
year for a 60-year-old male; the same policy cost about $1,350 per year 
without inflation protection. An insurance company official told us 
that the additional cost of inflation protection is the primary reason 
individuals do not buy a Partnership policy. 

The four states with Partnership programs also require minimum daily 
benefit amounts for all Partnership policies, while in three of the 
Partnership states, traditional long-term care insurance policies are 
not subject to this requirement.[Footnote 40] According to Partnership 
and DOI officials in California and Connecticut, minimum daily benefit 
amounts are required for Partnership policies in order to prevent 
consumers from purchasing coverage that would be insufficient to cover 
a substantial portion of the cost of their care. According to 
Partnership program materials from New York, for example, the average 
daily cost of long-term care in a nursing facility in New York was 
about $263 per day in 2004. Anything less than New York's 2004 minimum 
daily benefit amount of $171 for nursing facility care would therefore 
have required out-of-pocket payments for policyholders of more than one-
third of the cost of their nursing facility care. In 2006, the required 
minimum daily benefit amounts for nursing facility care in Partnership 
policies ranged from $110 per day in Indiana to $189 per day in New 
York. 

In the four states with Partnership programs, Partnership policies are 
subject to minimum nursing facility benefit period requirements 
established by the states, but some traditional long-term care 
insurance policies are not subject to these same requirements. In 
California and Indiana, Partnership policies are required to have 
dollar coverage that provides for at least 1 year of care in a nursing 
facility, while traditional long-term care insurance policies are not 
subject to a minimum benefit period requirement.[Footnote 41] In New 
York, Partnership policies are required to have minimum nursing 
facility benefit periods ranging from 18 months to 4 years, depending 
on the type of coverage an individual purchases, while certain 
traditional long-term care insurance policies are required to have 1- 
year minimum nursing facility benefit periods. In Connecticut, 
Partnership and traditional long-term care insurance policies are both 
required to have 1-year minimum benefit periods for care provided in 
nursing facilities. 

Partnership and traditional long-term care insurance policies both 
typically include elimination periods, which establish the length of 
time a policyholder who has begun to receive long-term care has to wait 
before receiving long-term care insurance benefits. The four states 
with Partnership programs limit the length of the elimination periods 
that can be included in Partnership policies. Two of the four states, 
Connecticut and New York, also generally limit the elimination period 
included in traditional long-term care insurance policies. In 2006, the 
elimination period for Partnership policies in California was no more 
than 90 days, while New York had a 100-day limit[Footnote 42] and 
Indiana had a 180-day limit. In Connecticut, the elimination period 
limit for both Partnership and traditional long-term care insurance 
policies was 100 days. According to a New York Partnership program 
staff member, in New York the elimination period for traditional 
policies was generally no more than 180 days. The effect of increasing 
the elimination period is to increase the out-of-pocket costs 
policyholders incur in paying for their long-term care. One official 
from an insurance company that sells long-term care insurance policies 
told us that having long elimination periods could quickly deplete an 
individual's assets, which might make the asset protection under the 
Partnership program less valuable. 

Unlike traditional long-term care insurance policies, Partnership 
policies in the four states must cover or offer case management 
services.[Footnote 43] Case management services can include providing 
individual assessments of policyholders' long-term care needs, 
approving the beginning of an episode of long-term care, developing 
plans of care, and monitoring policyholders' medical needs. According 
to a Partnership program official, by helping policyholders assess 
their medical needs and develop a plan of care, case management 
services can help policyholders use their benefit dollars efficiently. 
Partnership program officials in California, Connecticut, and Indiana 
explained that their states require that Partnership policies cover 
case management services provided through state-approved intermediaries 
that are independent of insurance company control. Partnership program 
officials in New York told us that Partnership policyholders have the 
option to seek case management services from independent case 
management service providers, but they can also elect to receive case 
management services from their own insurance company. Traditional long-
term care insurance policies are not required to cover case management 
services, though some may offer them as an optional benefit. In 
addition, some insurance companies that sell traditional long-term care 
insurance policies may directly provide case management services. 

Insurance companies in the four states with Partnership programs are 
subject to restrictions on the types of coverage they can offer in 
Partnership policies, while they are allowed to offer traditional long- 
term care insurance policies with more coverage options. In California, 
Connecticut, and Indiana, insurance companies can only offer 
Partnership policies with two types of coverage: an option that covers 
only nursing facility care, and a comprehensive option that covers 
nursing facility care as well as care provided in the home and in 
community-based facilities.[Footnote 44] In New York, insurance 
companies may only offer Partnership policies that cover comprehensive 
care. The four states do not allow insurance companies to offer 
Partnership policies in their state that exclusively cover care 
provided in the home and in community-based facilities. However, in the 
four states, insurance companies can offer traditional long-term care 
insurance policies with nursing facility care only, home and community- 
based facility only, and comprehensive coverage options. 

Partnership Policyholders Purchased Policies with Benefits That Were 
More Extensive Than Those Purchased by Traditional Policyholders 
Nationwide: 

In the four states with Partnership programs, traditional long-term 
care insurance policies can include--and individuals can therefore 
choose to purchase--generally the same benefits found in Partnership 
policies.[Footnote 45] However, Partnership policyholders tended to 
purchase benefits that are more extensive than those purchased by 
traditional long-term care insurance policyholders. 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. Specifically, more Partnership policyholders purchased 
policies with higher levels of inflation protection and coverage that 
includes care in both nursing facility and home and community-based 
care settings. See table 1 for a summary of the benefits purchased by 
Partnership and traditional long-term care insurance policyholders. For 
example, while all Partnership policyholders had policies from 2002 
through 2005 with the required inflation protection that generally 
increases daily benefit amounts by 5 percent annually, about 76 percent 
of traditional long-term care insurance policyholders had policies with 
some form of inflation protection. Similarly, during this period, 64 
percent of all Partnership policyholders had policies that included 
daily benefit amounts of $150 or greater, while 36 percent of 
traditional long-term care insurance policyholders nationwide had 
policies that provided daily benefit amounts at this level or greater. 
While these differences may reflect the benefit requirements found in 
Partnership policies, they may also reflect the incentive offered by 
the asset protection benefit of Partnership policies, which may 
influence consumers deciding whether to buy a Partnership or 
traditional long-term care insurance policy. The differences may also 
reflect the demographic and financial characteristics of the people 
living in the four states with Partnership programs relative to other 
states. 

Table 1: Percentage of Partnership and Traditional Long-Term Care 
Insurance Policyholders Purchasing Benefits from 2002 through 2005: 

Inflation protection. 

Yes; 
Partnership[A]: 100%; 
Traditional long-term care insurance policyholders[B]: 76%. 

No; 
Partnership[A]: 0; 
Traditional long-term care insurance policyholders[B]: 16. 

Other[C]; 
Partnership[A]: 0; 
Traditional long-term care insurance policyholders[B]: 8. 

Daily benefit amount. 

Less than $100; 
Partnership[A]: 0; 
Traditional long-term care insurance policyholders[B]: 11. 

$100 to $149; 
Partnership[A]: 35; 
Traditional long-term care insurance policyholders[B]: 53. 

$150 to $199; 
Partnership[A]: 40; 
Traditional long-term care insurance policyholders[B]: 25. 

$200 and greater; 
Partnership[A]: 24; 
Traditional long-term care insurance policyholders[B]: 11. 

Benefit period. 

1 year; 
Partnership[A]: 3; 
Traditional long-term care insurance policyholders[B]: 3. 

More than 1 and less than 3 years; 
Partnership[A]: 13; 
Traditional long-term care insurance policyholders[B]: 11. 

3 years; 
Partnership[A]: 37; 
Traditional long-term care insurance policyholders[B]: 23. 

More than 3 years but not unlimited; 
Partnership[A]: 30; 
Traditional long-term care insurance policyholders[B]: 37. 

Lifetime/unlimited benefit; 
Partnership[A]: 19; 
Traditional long-term care insurance policyholders[B]: 26. 

Elimination period. 

Less than 30 days; 
Partnership[A]: 3; 
Traditional long-term care insurance policyholders[B]: 8. 

30 days to 89 days; 
Partnership[A]: 23; 
Traditional long-term care insurance policyholders[B]: 21. 

90 days; 
Partnership[A]: 47; 
Traditional long-term care insurance policyholders[B]: 60. 

More than 90 days; 
Partnership[A]: 27; 
Traditional long-term care insurance policyholders[B]: 11. 

Coverage type. 

Comprehensive[D]; 
Partnership[A]: 99; 
Traditional long-term care insurance policyholders[B]: 91. 

Nursing facility-only; 
Partnership[A]: 1; 
Traditional long-term care insurance policyholders[B]: 3. 

Other[E]; 
Partnership[A]: 0; 
Traditional long-term care insurance policyholders[B]: 6. 

Sources: GAO analysis of the four states' UDS Partnership data and data 
provided by five insurance companies selling traditional long-term care 
insurance. 

Note: Percentages may not add to 100 due to rounding. 

[A] Reported values for daily benefit amount, benefit period, and 
elimination period include nursing facility data, but not home care 
data. 

[B] Approximately 2 percent of people nationwide with long-term care 
policies have Partnership policies. Thus, although the data may include 
a number of Partnership policyholders, about 98 percent of these people 
are likely to have traditional long-term care insurance. Because this 
is only 2 percent, we consider this as a reasonable proxy for 
traditional long-term care policyholders. 

[C] Includes policies with a future purchase option (7 percent) and 
policies with a deferred inflation option (1 percent). Enrollees who 
select a deferred inflation option may increase benefits at a later 
date that they choose. 

[D] Comprehensive coverage insurance policies provide benefits for both 
nursing facility-only and home care services. 

[E] Includes home care coverage. 

[End of table] 

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. According to information from one 
state's Partnership program, one reason for this requirement is that, 
unlike other insurance company benefits, insurance companies do not 
provide asset protection to Partnership policyholders. Instead, the 
four states with Partnership programs provide the asset protection 
benefit by allowing Partnership policyholders to protect some or all of 
their assets from Medicaid spend-down requirements. However, because 
Partnership policies are required to have inflation protection and 
other benefits that traditional long-term care insurance policies are 
not required to have, Partnership policies are likely to have higher 
premiums. According to a Connecticut state official, in 1996, before 
the state required that Partnership and traditional long-term care 
insurance policies have equivalent premiums for the same benefits, 
Partnership policies were 25 to 30 percent more expensive than 
traditional long-term care insurance policies with comparable benefits. 
The official further explained that after the requirement was 
established, sales of Partnership policies in Connecticut more than 
tripled. 

Compared with Traditional Long-Term Care Insurance Policies, Two of 
Four States Subject Partnership Policies to Additional Review, and All 
Four States Require Additional Agent Training: 

State officials told us that, while both Partnership and traditional 
long-term care insurance policies undergo reviews by the DOI in each of 
the four states with Partnership programs, Partnership policies in 
California and Connecticut also undergo another review by state 
Partnership program officials.[Footnote 46],[Footnote 47] California 
and Connecticut Partnership program staff review Partnership policies 
to determine whether the policies include the benefits mandated by 
Partnership regulations, and whether the insurance companies can meet 
additional data reporting and other administrative requirements. The 
programs' staff also try to ensure that the policies can be easily 
understood and contain all of the required language. The Partnership 
program offices in California and Connecticut perform their review of 
policies first, and then pass the application on to the DOI for further 
review. 

DOI officials in California and Connecticut told us that the 
Partnership office review of Partnership policies tends to be lengthier 
for insurance companies than the DOI review. A DOI official explained 
that when insurance companies add new benefit options to policies, the 
Partnership review can take longer. Other factors that may slow the 
Partnership review process include the time spent coordinating between 
the Partnership program and the state DOI, and the time it takes for 
insurance companies to learn how to complete the Partnership review 
process for the first time. State officials in Indiana and New York-- 
where reviews of new Partnership policies are conducted by the DOI and 
not a separate Partnership program office--told us that it generally 
takes the same amount of time for Partnership and traditional long-term 
care insurance policies to pass through the review process. 

Before they can sell Partnership policies, insurance agents are subject 
to additional state training requirements compared with agents who sell 
only traditional long-term care insurance policies. Although each of 
the four states with Partnership programs has somewhat different 
requirements, in general the states require Partnership agents to 
undergo about a day of training specific to the Partnership program in 
addition to the training that the states require for those who sell 
traditional long-term care insurance.[Footnote 48],[Footnote 49] 
Partnership program training typically includes information on topics 
such as long-term care planning, Medicaid, Medicare, the specific 
benefits required by the Partnership program, and how Partnership 
policies differ from traditional long-term care insurance policies. 
According to some state officials, agents need training on the 
Partnership program and Medicaid in order to understand the program and 
provide appropriate advice to their clients. In 2006, in three of the 
four states all Partnership program training was conducted in person, 
rather than via correspondence or on the internet; however, in New York 
agents completed an online internet-based course as well as classroom 
training as part of the Partnership program training. According to 
state officials, all four Partnership states require that the provider 
of this specialized Partnership training be approved by the state DOI, 
and in Connecticut, the training is provided exclusively by Partnership 
program staff. 

Despite the complexity of long-term care insurance products, DOI 
officials in three states with Partnership programs reported that long- 
term care insurance policies, including Partnership policies, garner 
few complaints from policyholders. For example, from 1998 to 2005 the 
New York Insurance Department received an average of two to three 
complaints about Partnership policies each year (there were 51,262 
active Partnership policies in the fourth quarter of 2005 in New York). 
During this time period, according to data from the New York state DOI, 
complaints about all long-term care insurance policies in New York 
related to issues such as the interpretation of policy provisions, 
premium amounts, and refusals to issue policies. 

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. On average, Partnership policyholders 
are younger than traditional long-term care insurance policyholders. 
Those with long-term care insurance policies are also more likely to be 
female rather than male, and married than unmarried. 

Long-Term Care Insurance Policyholders Generally Have Higher Incomes 
and More Assets than Those Without Long-Term Care Insurance: 

In examining Partnership policyholders in two states, traditional long- 
term care insurance policyholders nationwide, and those without long- 
term care insurance nationwide, we found that Partnership and 
traditional long-term care policyholders are more likely to have higher 
incomes than those without such insurance.[Footnote 50] In California 
and Connecticut--the two states with Partnership programs for which we 
had data--at the time they purchased a policy, 55 percent of 
Partnership policyholders over age 55 had monthly household incomes of 
$5,000 or greater. In comparison, 43 percent of all households with 
people over age 55 in these states had monthly household incomes at 
this level at the time they were surveyed.[Footnote 51],[Footnote 52] 
Similarly, at the national level, when surveyed, 46 percent of 
traditional long-term care policyholders over age 55 had monthly 
household income of $5000 or greater, whereas 29 percent of those 
individuals over age 55 without long-term care insurance had such 
incomes.[Footnote 53] We also found that more than half (53 percent) of 
Partnership policyholders had household assets of $350,000 or more in 
California and Connecticut. Data on the asset levels of all households 
in those states were not available for our comparison. Nationwide, 36 
percent of traditional long-term care insurance policyholders and 17 
percent of people without long-term care insurance had household assets 
exceeding $350,000 (see table 2). 

Table 2: Household Income and Household Asset Distribution among 
Partnership Policyholders and Comparison Populations in Partnership 
States and Nationally: 

Monthly household income ranges[H]. 

<$1000; 
Partnership states: CA and CT[A]: 
Partnership policyholders[C, D]: 1%; 
Partnership states: CA and CT[A]: All households[E, F]: 8%; 
All states[B]: Traditional long-term care insurance policyholders[G]: 
4%; 
All states[B]: Those without long-term care insurance: 15%. 

$1000-$4999; 
Partnership states: CA and CT[A]: Partnership policyholders[C, D]: 45; 
Partnership states: CA and CT[A]: All households[E, F]: 49; 
All states[B]: Traditional long-term care insurance policyholders[G]: 
50; 
All states[B]: Those without long-term care insurance: 56. 

$5000 or greater; 
Partnership states: CA and CT[A]: Partnership policyholders[C, D]: 55; 
Partnership states: CA and CT[A]: All households[E, F]: 43; 
All states[B]: Traditional long-term care insurance policyholders[G]: 
46; 
All states[B]: Those without long-term care insurance: 29. 

Household asset ranges[I,J]. 

<$100,000; 
Partnership states: CA and CT[A]: Partnership policyholders[C, D]: 16%; 
Partnership states: CA and CT[A]: All households[E, F]: Not Available; 
All states[B]: Traditional long-term care insurance policyholders[G]: 
36%; 
All states[B]: Those without long-term care insurance: 62%. 

$100,000-$199,999; 
Partnership states: CA and CT[A]: Partnership policyholders[C, D]: 14; 
Partnership states: CA and CT[A]: All households[E, F]: Not Available; 
All states[B]: Traditional long-term care insurance policyholders[G]: 
14; 
All states[B]: Those without long-term care insurance: 12. 

$200,000-$349,999; 
Partnership states: CA and CT[A]: Partnership policyholders[C, D]: 17; 
Partnership states: CA and CT[A]: All households[E, F]: Not Available; 
All states[B]: Traditional long-term care insurance policyholders[G]: 
14; 
All states[B]: Those without long-term care insurance: 9. 

$350,000 or greater; 
Partnership states: CA and CT[A]: Partnership policyholders[C, D]: 53; 
Partnership states: CA and CT[A]: All households[E, F]: Not Available; 
All states[B]: Traditional long-term care insurance policyholders[G]: 
36; 
All states[B]: Those without long-term care insurance: 17. 

Sources: GAO analysis of Partnership program purchaser surveys, 
American Community Survey (ACS), and the HRS. 

Note: Percentages may not add to 100 due to rounding. 

[A] Does not include data from New York and Indiana. 

[B] Data for all states are from the HRS, 2004. 

[C] Connecticut values are based on survey data from 2002 through 2005. 

[D] California values are based on survey data from 2003 and 2004. 

[E] Data are from the ACS, 2004. 

[F] We use the All Households category as a proxy for those without 
long-term care insurance in California and Connecticut. Approximately 
12 percent of people nationwide over 55 have long-term care insurance 
so our measure is likely to contain approximately 88 percent without 
long-term care insurance. 

[G] Approximately 2 percent of people nationwide with long-term care 
policies have Partnership policies. Thus, although the HRS data may 
include a small number of Partnership policyholders, about 98 percent 
of these people likely have traditional long-term care insurance. 

[H] Data for monthly income ranges are for survey respondents aged 55 
and over. 

[I] Data for asset ranges are for all survey respondents regardless of 
age. 

[J] In the policyholder surveys, California and Connecticut instructed 
policyholders to exclude the value of homes and cars when reporting 
their assets. The HRS data for assets also exclude homes and vehicles. 

[End of table] 

Partnership Policyholders Are Younger on Average than Traditional Long- 
Term Care Insurance Policyholders and People Without Long-Term Care 
Insurance: 

In our analyses, we found that Partnership policyholders in California, 
Connecticut, Indiana, and New York are younger on average than 
traditional long-term care insurance policyholders nationally and those 
without long-term care insurance nationally (see table 3). We also 
found that those who purchase long-term insurance policies--both 
traditional and Partnership--are more likely to be women than men, and 
married than unmarried.[Footnote 54] 

Table 3: Demographic Characteristics of Partnership Policyholders and 
Comparison Populations in Partnership States and Nationally: 

Average age; 
All partnership policyholders[C, E]: 59; 
Traditional long- term care insurance policyholders[A, D]: 63[C]; 
People without long- term care insurance[D]: 64[B]. 

Age range; 
All partnership policyholders[C, E]: 18-104; 
Traditional long-term care insurance policyholders[A, D]: 30-95[C]; 
People without long-term care insurance[D]: 24-107[B]. 

Age categories. 

Under 55 years; 
All partnership policyholders[C, E]: 28%; 
Traditional long-term care insurance policyholders[A, D]: 20%; 
People without long- term care insurance[D]: 21%. 

55-64 years; 
All partnership policyholders[C, E]: 49; 
Traditional long- term care insurance policyholders[A, D]: 37; 
People without long-term care insurance[D]: 36. 

65-74 years; 
All partnership policyholders[C, E]: 19; 
Traditional long- term care insurance policyholders[A, D]: 30; 
People without long-term care insurance[D]: 22. 

75 years & over; 
All partnership policyholders[C, E]: 3; 
Traditional long-term care insurance policyholders[A, D]: 13; 
People without long- term care insurance[D]: 20. 

Sex. 

Female; 
All partnership policyholders[C, E]: 58%; 
Traditional long-term care insurance policyholders[A, D]: 56%; 
People without long-term care insurance[D]: 54%. 

Male; 
All partnership policyholders[C, E]: 42; 
Traditional long-term care insurance policyholders[A, D]: 44; 
People without long-term care insurance[D]: 46. 

Marital status. 

Married; 
All partnership policyholders[C, E]: 75%; 
Traditional long- term care insurance policyholders[A, D]: 72%; 
People without long-term care insurance[D]: 62%. 

Not married; 
All partnership policyholders[C, E]: 24; 
Traditional long- term care insurance policyholders[A, D]: 28; 
People without long-term care insurance[D]: 38. 

Unknown; 
All partnership policyholders[C, E]: 1; 
Traditional long-term care insurance policyholders[A, D]: 0; 
People without long-term care insurance[D]: 0. 

Source: GAO analysis of the UDS and the HRS. 

Note: Percentages may not add to 100 due to rounding. 

[A] Approximately 2 percent of people nationwide with long-term care 
policies have Partnership policies. Thus, although the HRS data may 
include a small number of Partnership policyholders, about 98 percent 
of these people are likely to have traditional long-term care 
insurance. 

[B] Denotes average age at time of survey. 

[C] Data are as of time of purchase. 

[D] Data are from the 2004 HRS, which is a longitudinal national panel 
survey of individuals over age 50. 

[E] Data are from the UDS for 2002 through 2005. 

[End of table] 

Partnership Programs Unlikely to Result in Savings for Medicaid Largely 
Because of the Asset Protection Benefit of Partnership Policies: 

Surveys conducted in some states with Partnership programs and our 
illustrative financing scenarios together suggest that in the four 
states with Partnership programs, the programs are unlikely to result 
in Medicaid savings and could result in increased Medicaid spending. 
Survey data show that in the absence of a Partnership program in their 
state, 80 percent of Partnership policyholders would have purchased a 
traditional long-term care insurance policy and may represent a 
potential source of increased spending for Medicaid. Data are not yet 
available to determine the extent to which the 20 percent of 
individuals who would have self-financed their care will access 
Medicaid in the absence of a Partnership program. 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. Because of the amount of insurance Partnership 
policyholders generally purchase and their typical income and assets, 
few Partnership policyholders are likely to ever become eligible for 
Medicaid, which suggests that the Partnership programs are likely to 
have a small impact on Medicaid spending. 

Most Partnership Policyholders Would Have Purchased Traditional Long- 
Term Care Insurance in Absence of Partnership Program, Suggesting an 
Increase in Medicaid Spending: 

The four Partnership programs are unlikely to result in savings for 
their state Medicaid programs and may result in increased Medicaid 
spending.[Footnote 55] 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.[Footnote 56] 
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. Our financing scenarios 
indicate that with a Partnership policy, an individual with assets and 
benefits typical of many policyholders becomes eligible for Medicaid 
sooner than if the individual financed his or her long-term care with a 
traditional long-term care policy. Because a Partnership policy, unlike 
a traditional long-term care insurance policy, exempts the individual 
in the scenario from spending his or her protected assets on long-term 
care before the individual becomes eligible for Medicaid, the 
individual with a Partnership policy becomes eligible for Medicaid 
sooner than if the individual had a traditional policy, which is likely 
to increase the amount of time Medicaid finances the individual's long- 
term care. The scenarios also suggest that if the individual would have 
self-financed his or her long-term care in the absence of the 
Partnership program, the individual would become eligible for Medicaid 
at about the same time as he or she would have with a Partnership 
policy. 

The three financing scenarios we compared were: 

* financing using a Partnership policy, 

* financing using a traditional long-term care insurance policy, and: 

* self-financing without any long-term care insurance. 

For illustrative purposes, our scenarios are based on an individual 
with assets that are typical of many of those who have long-term care 
insurance--that is, an individual who holds assets of 
$300,000.[Footnote 57] In two of our scenarios, the individual holds 
long-term care insurance benefits of $210,000, which will cover a 
nursing facility stay of about 3 years--the average nursing facility 
stay is between 2 and 3 years. We also make several simplifying 
assumptions, such as that the individual is not overinsured (i.e., does 
not have insurance that exceeds the value of the individual's assets) 
and is unmarried at the time long-term care is required. 

Specifically, scenario A (see fig. 1) depicts a Partnership 
policyholder with $300,000 in assets who purchases a policy valued at 
$210,000 (worth about 3 years of nursing facility coverage), 
automatically receiving $210,000 in asset protection. When the 
individual requires long-term care, the Partnership policy will pay for 
the first $210,000 worth of care--the total amount of his or her 
insurance benefits. After these Partnership benefits have been 
exhausted, the individual will have to spend down the $90,000 of 
unprotected assets on long-term care and then, assuming the individual 
meets state Medicaid income eligibility requirements, Medicaid will 
begin to finance the individual's long-term care. As depicted by 
scenario B, if this same individual purchases a traditional long-term 
care insurance policy worth $210,000 instead of the Partnership policy, 
insurance will pay for the first $210,000, and the individual will then 
have to spend down the unprotected assets--all $300,000--before he or 
she is eligible for Medicaid.[Footnote 58],[Footnote 59] Scenario C 
describes how this same individual would finance his or her long-term 
care without any long-term care insurance. As scenario C shows, if the 
individual had $300,000 in assets, these would have to be spent before 
the individual would be eligible for Medicaid.[Footnote 60] In both 
this scenario and in the scenario in which the individual owns a 
Partnership policy, Medicaid begins paying for the individual's long- 
term care at about the same time, with the difference being whether 
long-term care costs prior to Medicaid eligibility are paid by long- 
term care insurance or by the individual. 

Figure 1: Financing of Long-Term Care Nursing Facility Stays Under 
Three Scenarios: 

[See PDF for image] 

Source: GAO. 

Note: To simplify our scenarios, we made some simplifying assumptions, 
such as, the individual depicted in the scenarios has assets and 
benefits that are typical of many individuals with long-term care 
insurance; the individual is unmarried; and the individual has assets 
that are greater than or equal to the value of the individual's 
Partnership policy. Our results do not depend on the level of assets or 
the amount of insurance dollars, provided the amount of insurance 
dollars does not exceed the amount of assets. Appendix II further 
discusses the effects of changing these assumptions. 

[End of figure] 

We found some circumstances when adjusting the assumptions underlying 
our scenarios resulted in delaying or accelerating Medicaid 
eligibility, but most did not change the outcomes related to Medicaid 
savings. For example, to construct our scenarios, we assumed an 
individual who had $300,000 in assets, $210,000 in insurance coverage, 
and who used this coverage for long-term care that cost about $70,000 
per year. When we changed these amounts--as long as the amount of 
insurance coverage did not exceed the amount of assets--the scenarios 
still showed that the individual became eligible for Medicaid sooner 
with a Partnership policy than with a traditional policy, and became 
eligible for Medicaid at the same time with a Partnership policy and 
self-financing. 

Our scenarios also assumed that the individual with a Partnership 
policy or a traditional long-term insurance policy was not overinsured-
-that is, had more insurance coverage than the value of his or her 
assets. When we modified this assumption, we found that one portion of 
our finding still held true--the individual in the scenarios using the 
Partnership policy still became eligible for Medicaid sooner than he or 
she did using a traditional long-term care insurance policy. However, 
the individual also became eligible for Medicaid later using the 
Partnership policy than when the individual self-financed his or her 
own long-term care. This suggests that if individuals overinsure their 
assets, those who finance their long-term care using Partnership 
policies could represent a source of savings for Medicaid when compared 
with those who self-finance their care. 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 suggests that most 
individuals are unlikely to overinsure their assets at the time of 
purchase, though their status could change over time.[Footnote 61] In 
California and Connecticut combined, in 2004, 53 percent of Partnership 
policyholders had at least $350,000 worth of household assets at the 
time of purchase, while only about 32 percent of these Partnership 
policyholders have more than 5 years of coverage equal to about 
$350,000. 

Our scenarios also depicted an unmarried individual. While most 
Partnership policyholders are married when they purchase a Partnership 
policy, by the time most individuals require long-term care services, 
they are unmarried. Our analysis of 2004 HRS data of individuals 
entering a nursing facility who are age 65 or older showed that about 
66 percent are widowed, and more than 75 percent are not married. 
However, there are likely some individuals who will be married when 
they require long-term care services. In general, after applying the 
Medicaid spousal exemption, if the individual's assets remain higher 
than the value of his or her insurance, being married does not change 
the result that compared with a Partnership policy, the individual's 
time to attain Medicaid eligibility is accelerated with a traditional 
policy and is the same as with self-financing.[Footnote 62] However, if 
the amount of the Medicaid spousal exemption brings the individual's 
eligible assets below the value of the insurance policy, then the 
individual would fall into an overinsured category. Being overinsured 
means the individual would become a source of savings for Medicaid; 
however, this only applies to the 20 percent of individuals who would 
have self-financed their care in the absence of a Partnership program. 
The 80 percent of individuals who would have purchased a traditional 
policy still represent potential increased spending, whether they are 
overinsured or not. 

We also explored what would occur if we modified our assumption that an 
individual is equally likely to transfer assets in all three of our 
scenarios. We found that if the individual who would have self-financed 
care transfers his or her assets, it would likely take less time for 
the individual to become eligible for Medicaid than it would with a 
Partnership policy. This could result in some savings to Medicaid for 
those individuals who purchase Partnership policies instead of 
transferring assets. We also found that for an individual who would 
have purchased traditional insurance, the amount of assets transferred 
would have to be at least as much as the value of the insurance policy 
purchased in order for the Partnership program to result in Medicaid 
savings. While we do not know how many individuals would have 
transferred assets in the absence of the Partnership program, one of 
our recent reports suggests that asset transfers may not be that 
prevalent. In March 2007, we reported that few applicants who were 
approved for Medicaid coverage ultimately transferred assets.[Footnote 
63] In addition, the asset transfer standards established under DRA 
increased the look-back period to 5 years, which reduces the 
opportunity for individuals to transfer assets to establish Medicaid 
eligibility. 

Overall, our scenarios suggest that in the aggregate the savings 
potential from the Partnership programs of the 20 percent of 
individuals who would have self-financed their care is outweighed by 
the 80 percent of individuals who will likely result in increased 
Medicaid spending. For more information on our simplifying assumptions 
and the impact of adjusting these assumptions on our findings, see 
appendix II. 

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. There are two reasons for this 
expectation. First, most Partnership policyholders purchase policies 
that are likely to cover all or most of their long-term care expenses 
during their lifetimes, thereby reducing the likelihood that the 
policyholders will require financing from Medicaid for their long-term 
care. We found that 86 percent of Partnership policyholders had 
benefits covering 3 or more years, while the average nursing facility 
stay lasts between 2 and 3 years. One study of traditional long-term 
care insurance policyholders with lifetime benefits found that only 
about 14 percent of policyholders used their benefits for more than 3 
years, and fewer than 5 percent of all policyholders used their 
benefits for more than 5 years. These data suggest that if Partnership 
policyholders continue to purchase policies with benefit periods that 
cover their long-term care needs, the percentage of Partnership 
policyholders who exhaust their benefits and then become eligible for 
Medicaid is likely to be limited. While some experts have reported that 
there is a recent trend for traditional long-term care insurance 
policies to be sold with shorter benefit periods, the minimum benefit 
requirements that applied to Partnership policies could result in 
Partnership benefits remaining more stable over time. 

The second reason we estimate that few Partnership policyholders are 
likely to turn to Medicaid for their long-term care financing is that, 
in general, Partnership policyholders have incomes that exceed Medicaid 
income eligibility thresholds. Although Partnership policyholders can 
purchase varying amounts of asset protection, they must still meet 
state Medicaid income thresholds in order to become eligible for 
Medicaid. In 2006, the monthly income eligibility thresholds for all 
states were required to be no higher than 300 percent of the 
Supplemental Security Income standard, which was $1,809 in 
2006.[Footnote 64] However, only 1 percent of the Partnership 
policyholders in California and Connecticut had household incomes less 
than $1,000 per month at the time they purchased their long-term care 
insurance policies. Our analysis of HRS data also indicates that 
wealthy individuals continue to have a high level of assets[Footnote 
65] at the time they are admitted to a nursing facility, which suggests 
that many Partnership policyholders will continue to be relatively 
wealthy and unlikely to meet Medicaid eligibility thresholds, even at 
the time they enter a nursing facility. For example, of all people who 
entered a nursing facility in 2004, the average asset value for the 25 
percent of people with the highest assets was over $334,000 in 1992, 
and by 2004, 12 years later, their assets had grown to almost $430,000. 
Similarly, the average monthly income for the 25 percent of people with 
the highest incomes who were admitted to a nursing facility in 2004 was 
about $5,600 in 1992, and about $3,700 in 2004--more than double the 
threshold for Medicaid eligibility in any of the four states with 
Partnership programs. 

The income levels of Partnership policyholders may reflect the fact 
that the cost of purchasing a long-term care insurance policy-- 
including a Partnership policy--may exceed what most elderly households 
can afford. According to guidelines published by the NAIC, a person 
should spend no more than 7 percent of his or her income on long-term 
care insurance. A traditional long-term care insurance policy covering 
3 years of care, with inflation protection, a $200 daily benefit 
allowance, and comprehensive coverage, costs about $3,000. In order to 
afford such a policy, an individual would need an annual income of 
about $43,000. However, data from the 2004 HRS show that about half of 
elderly households nationwide had annual incomes below $43,000. A 
survey of Connecticut Partnership policyholders suggested that cost was 
the most important factor in policyholders' decision to let their 
policies lapse. Sixty-two percent of surveyed individuals in 
Connecticut who let their Partnership policy lapse said that they 
dropped their Partnership policy because it was too costly.[Footnote 
66] 

As of 2006, few Partnership policyholders in the four states with 
Partnership programs had accessed Medicaid to finance their long-term 
care. Of the approximately 218,000 Partnership policies sold since the 
program was first introduced in the late 1980s, approximately 190,000 
were still active as of August 2006. In addition, as of that same date, 
a total of 3,454 Partnership policyholders--less than 2 percent of all 
Partnership policyholders--have accessed long-term care benefits since 
the Partnership programs began. Of that group, 292 Partnership 
policyholders exhausted their long-term care insurance benefits, and 
159 policyholders--approximately 54 percent of those who exhausted 
their benefits--subsequently went on to access Medicaid benefits. The 
number of Partnership policyholders who access benefits and also access 
Medicaid is likely to grow, because people typically use long-term care 
services 15 to 20 years after they purchase a policy, and the first 
Partnership policies were established less than 20 years ago. We do not 
know why some of the 292 individuals who exhausted their long-term care 
insurance benefits did not access Medicaid. It is possible that their 
income was higher than Medicaid eligibility thresholds, or they may 
have had unprotected assets that they had to spend down. Alternatively, 
they may have preferred to self-finance their care, they may have died, 
or they may have stopped using long-term care services. 

Concluding Observations: 

With DRA authorizing all states to implement Partnership programs, 
information on the Partnership policies and policyholders from the four 
states with Partnership programs may prove useful to other states 
considering implementing such programs. In particular, states may want 
to consider the trade-offs that come with implementing a Partnership 
program. First, a Partnership program's potential impact on Medicaid 
expenditures should be considered. 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. This is largely due to the modifications of 
state Medicaid eligibility requirements states have to make in order to 
offer asset protection to Partnership policyholders and survey data 
showing that the majority of Partnership policyholders would have 
purchased traditional long-term care insurance had the Partnership 
program not existed. However, given the amount of long-term care 
insurance benefits and income and asset levels of current Partnership 
policyholders, we also anticipate that relatively few policyholders 
will access Medicaid in the four states with Partnership programs. 
Therefore, the impact of Partnership programs on state Medicaid 
programs will likely be small. 

While Partnership programs are not likely to reduce states' Medicaid 
expenditures, the programs do offer some benefits to some consumers. 
The asset protection feature, which states require Partnership policies 
to offer at no additional premium cost, can benefit policyholders who 
exhaust their Partnership benefits and who access Medicaid. Even if 
individuals do not end up using their Partnership insurance or 
Medicaid, the availability of asset protection may provide peace of 
mind for those who fear the risk of having to spend their assets on 
their long-term care. However, states that implement Partnership 
programs should recognize that, because of their cost, Partnership 
policies generally do not benefit all consumers. The cost of annual 
premiums for long-term care insurance may not be affordable to 
individuals with moderate incomes, and as a result long-term care 
insurance policyholders, including Partnership policyholders, tend to 
be wealthier than those without such insurance. 

Agency and State Comments and Our Evaluation: 

We received written comments on a draft of this report from HHS (see 
appendix III) and from the four states with Partnership programs, 
California, Connecticut, Indiana, and New York (see appendix IV). 

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. Specifically, HHS 
was concerned that the simplified scenarios were flawed in that they 
did not account for individuals who engage in estate planning 
activities prior to expending all of their own funds on long-term care 
costs. HHS further noted that the data sources used in our report would 
not likely yield accurate data on asset transfers and criticized the 
report for not incorporating a review of the literature on this issue 
and reporting on analyses of the experience of the four states with 
Partnership programs. The four states with Partnership programs 
disagreed with our conclusion that the Partnership programs are 
unlikely to result in Medicaid savings and, like HHS, commented that 
our scenarios did not adequately account for the impact of asset 
transfers. California, Connecticut, and New York raised concerns about 
our methodology for estimating the financial impact of the Partnership 
program on Medicaid. California and Connecticut noted that we had 
excluded two Partnership policyholder survey questions from our 
analysis that they consider in their own analysis of the Partnership 
program. 

We maintain that the evidence suggests that the Partnership program is 
unlikely to result in savings for Medicaid, despite limited data and 
program experience. We agree with HHS and the four states with 
Partnership programs that Medicaid savings could result from those 
individuals who would have transferred assets in the absence of the 
Partnership program. 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. Further, the assumptions used by California, Connecticut, and 
Indiana to predict savings could underestimate the percentage of 
Partnership policyholders that represent a cost to Medicaid and 
overestimate the percentage that represent savings to Medicaid. We did 
not provide an overview of the literature on asset transfers in our 
draft report because, as we noted in our March 2007 report, the 
evidence on the extent to which individuals transfer assets to become 
financially eligible for Medicaid coverage for long-term care is 
generally limited and often based on anecdote.[Footnote 67] We did not 
comment on states' analyses of their experience with the Partnership 
programs because, according to our analysis, their methodology 
overstates potential savings and understates potential costs. 

Impact of Asset Transfers on Medicaid: 

In appendix II of our draft report we acknowledged that some savings 
could result for Medicaid if, in the absence of a Partnership program, 
an individual would have self-financed his or her long-term care and 
transferred assets. We also acknowledged how a Partnership program can 
result in Medicaid savings if, in the absence of the Partnership 
program, an individual would have purchased a traditional long-term 
care insurance policy and transferred assets that were at least equal 
to the value of the traditional long-term care insurance policy. 
However, our analysis suggests that these savings would be limited to 
those individuals who, prior to requiring long-term care, would have 
transferred assets to become eligible for Medicaid in the absence of 
the Partnership program. Further, the larger percentage of 
policyholders who represent a potential cost to Medicaid are likely to 
offset savings attributable to asset transfers. 

While the literature on the extent of asset transfers is generally 
limited and anecdotal, in March 2007, we published a report that 
included an analysis of asset transfers by nursing home residents using 
HRS data. We complemented that analysis by examining a sample of 
Medicaid applications in three states to identify the extent of asset 
transfer activity.[Footnote 68] Both of these analyses suggested that 
about 10 to 12 percent of individuals transferred assets before 
applying for Medicaid, and the median amount transferred based on 
analysis of the HRS data and state Medicaid applications was $1,239 and 
$15,152, respectively.[Footnote 69] The relatively low incidence of 
asset transfers and the small amounts transferred relative to the costs 
associated with long-term care suggest that the impact of asset 
transfers on Medicaid may be limited. While the results of this study 
are not specific to Partnership policyholders, we found no other 
credible evidence suggesting that Partnership policyholders would 
transfer sufficient assets to offset the costs to Medicaid associated 
with the large number of individuals who would have purchased 
traditional long-term care insurance in the absence of the Partnership 
program. Also, although the overall impact of DRA on Medicaid 
eligibility is uncertain, DRA reduces the opportunity for people to 
transfer assets in order to become Medicaid eligible by increasing the 
period Medicaid programs can "look-back" at an individual's assets to 5 
years. In response to HHS' comments about asset transfers, we have 
amended our draft report to make the discussion of asset transfers more 
prominent in the body of our report and to include reference to our 
March 2007 study. 

Methodology for Assessing Medicaid Savings: 

California, Connecticut, and New York raised concerns about our 
methodology for estimating the financial impact of the Partnership 
program on Medicaid. California and Connecticut noted that we had 
excluded two Partnership policyholder survey questions from our 
analysis that they consider in their own analysis of the Partnership 
program. These questions asked Partnership policyholders whether they 
would have transferred assets to become eligible for Medicaid in the 
absence of the program and whether the Partnership program influenced 
their decision to buy long-term care insurance.[Footnote 70] 

We maintain that our methodology is sound and that the methodology 
California, Connecticut, and Indiana use underestimates the potential 
for Medicaid costs and overestimates the potential for Medicaid 
savings. We relied on a question that asked Partnership policyholders 
whether they would have purchased traditional long-term care insurance 
in the absence of the Partnership program.[Footnote 71] We disagree 
with California, Connecticut, and Indiana regarding the appropriateness 
of including additional survey information because of concerns about 
ambiguous wording and these states' assumption that policyholders' 
responses can be used to predict the likelihood of future asset 
transfers. We did not present the states' analyses for evaluating 
Medicaid spending in our draft report because we believe the states' 
analyses overstate potential savings and understate potential costs. 

In our analysis, we estimated that about 80 percent of policyholders 
would have purchased traditional long-term care insurance in the 
absence of the program, and we estimated that these individuals 
generally represented a potential cost to Medicaid. Our 80 percent 
estimate was based on analysis of the survey question about how 
Partnership policyholders would have financed their long-term care in 
the absence of the Partnership program. The methodology that 
California, Connecticut, and Indiana use to estimate potential costs is 
based on a policyholders' response to the following criteria, obtained 
from three survey questions: 

1. The policyholder would have purchased traditional insurance in the 
absence of the Partnership program; 

2. the Partnership program had no influence on the policyholders' 
decision to purchase insurance; and: 

3. the policyholder would not have transferred assets in the absence of 
the Partnership program. 

By adding the two additional criteria to determine whether an 
individual represents a potential cost to Medicaid, the states' 
estimate of the percentage of policyholders who fell into this category 
was more restrictive than ours. We have several concerns with the 
wording of the survey questions used to define the additional two 
criteria. In addition, according to our analysis, the criteria that 
define costs are not correctly specified because there are some 
circumstances when the second criterion would represent a cost to 
Medicaid whether or not the Partnership program had an influence on the 
policyholder's decision to purchase insurance. 

The wording of the survey question about whether the Partnership 
program influenced the policyholder's decision to purchase insurance 
was not specific with regard to how the decision was influenced. In 
particular, the Partnership programs' influence could have been to 
influence the policyholder to purchase a different benefit package, to 
change the timing of the policyholder's purchase, or to change the 
policyholder's decision to purchase at all. Given the ambiguity of the 
question, it is not clear how a response should be interpreted. 
Moreover, how this question is interpreted could influence the outcome 
of an analysis of the likely impact of the Partnership program on 
Medicaid spending. Our analysis suggests that even if the Partnership 
program influenced policyholders to purchase enhanced benefits, the 
Partnership program still represented a potential cost, just a smaller 
cost. Adding this criterion incorrectly narrows the number of 
policyholders who represent potential costs to Medicaid. 

We also disagree with the states' assumption that policyholders' 
responses to the asset transfer question can be used to approximate the 
extent to which individuals would or would not transfer all of their 
assets in the future and--in the absence of the program--become 
eligible for Medicaid. The respondents were asked about events that are 
unlikely to occur for 15 to 20 years, and to speculate on what their 
actions would be in the future if there was no Partnership program. 
California, Connecticut, and New York reported that about 25 percent of 
respondents said they would have transferred assets to become eligible 
for Medicaid. All of these individuals are excluded from the pool of 
policyholders who represent a potential cost to the program in the 
state cost estimates. The assumption that all of these individuals 
would have transferred all of their assets is inconsistent with our 
March 2007 report regarding the incidence of asset transfers and amount 
of assets transferred for the purposes of becoming eligible for 
Medicaid. We agree that some individuals would have transferred assets 
in the absence of the program, but do not agree that this question 
provides an adequate measure of the extent to which it occurs. 
Therefore, we believe using the responses to this question may 
overstate the extent to which respondents would actually transfer all 
of their assets. 

We have similar concerns with the methodology California, Connecticut, 
and Indiana used to estimate savings, because it is based on the same 
three questions, two of which we view as inadequate. We assumed in our 
scenarios that individuals who would have self-funded their long-term 
care without insurance were likely to be budget neutral, but 
acknowledged there were several circumstances that would cause these 
individuals to become a potential source of savings. However, we did 
not attempt to quantify the percentage who would become a source of 
savings because of data limitations and because the savings were likely 
to be outweighed by the larger percentage of policyholders who likely 
represented a cost to the program. In contrast, California, 
Connecticut, and Indiana consider a policyholder to represent savings 
if: 

1. the policyholder would have purchased a Partnership policy as an 
alternative to transferring assets; and: 

2. (a) the Partnership program influenced their decision to purchase 
insurance, or 
(b) the policyholder would not have purchased long-term care insurance 
in the absence of the Partnership program. 

As we noted in the discussion above regarding the states' methodology 
for estimating Medicaid costs, we disagree with the reliance on the 
asset transfer question as a measure of the extent to which individuals 
would have transferred assets. We also believe it was incorrect to 
predict Medicaid savings for those respondents who said the Partnership 
program influenced their decision to purchase a policy. Even if the 
Partnership program influenced the policyholder's decision to purchase 
enhanced benefits, our analysis suggests the Partnership program would 
not result in savings but would rather result in a reduction of costs 
to Medicaid. 

New York commented that our analysis was not applicable to their state. 
They cited preliminary results of a 2006 survey that estimated the 
number of recent Partnership policyholders who would have financed 
their care with a traditional policy in the absence of the Partnership 
program. Their estimates were considerably lower than the 80 percent we 
estimated based on our results from California, Connecticut, and 
Indiana. New York used different questions in their survey than 
California, Connecticut, and Indiana.[Footnote 72] As such, their 
results were not comparable to those of the other states. We believe 
New York's question was less direct for the purposes of our analysis 
than the question used by California, Connecticut, and Indiana in their 
survey of Partnership policyholders. New York's question asked 
policyholders--using a multiple choice format--how they would pay for 
long-term care in the future, if they had not purchased a Partnership 
policy. One of the possible responses was that they would purchase 
traditional insurance. This required policyholders to speculate about 
future behavior, and to respond to a more complex question and answer 
format. California, Connecticut, and Indiana asked directly about 
decisions made in the past--whether the Partnership policyholder would 
have purchased long-term care insurance in the absence of the 
Partnership program, with a simple yes or no response. 

Impact on Medicaid Savings of Purchasing Different Levels of Benefits 
by Partnership and Traditional Policyholders: 

California, Connecticut, and New York also commented that our finding 
that Partnership policyholders tended to have more extensive benefits 
than traditional policyholders was inconsistent with our scenarios that 
assumed that the policyholder would have purchased comparable benefits 
in the absence of the Partnership program. Assuming comparable benefits 
in our scenarios allowed us to assess the impact of the Partnership 
program on Medicaid savings in a simpler framework. As we explain in 
appendix II, some Partnership policyholders may have more coverage than 
if they had purchased a traditional policy. We show that if the value 
of the insurance policy is less than the amount of assets owned by the 
policyholder, the person will still take longer to become Medicaid 
eligible with a traditional long-term care insurance policy with a 
lesser value than with a Partnership policy. However, the amount of 
additional time it would take for the individual with a traditional 
policy to become eligible for Medicaid would be less than if the two 
policies had the same amount of benefits. 

HHS, the Indiana Partnership program, and the New York Department of 
Insurance provided us with technical comments and clarifications, which 
we incorporated as appropriate. 

As agreed with your offices, unless you publicly announce its contents 
earlier, we plan no further distribution of this report until 30 days 
after its issue date. At that time, we will send copies of this report 
to the Secretary of Health and Human Services, congressional 
committees, and other interested parties. We will also make copies 
available to others upon request. In addition, the report will be 
available at no charge on the GAO Web site at http://www.gao.gov. 

If you or your staff have questions about this report, please contact 
me at (202) 512-7119 or dickenj@gao.gov. Contact points for our Office 
of Congressional Relations and Public Affairs may be found on the last 
page of this report. GAO staff who made key contributions to this 
report are listed in Appendix IV. 

Signed by: 

John E. Dicken: 
Director, Health Care: 

[End of section] 

Appendix I: Data and Methods for Analysis of Long-Term Care Insurance 
Benefits and Demographics: 

In this appendix we describe the data and methods that we used to 
examine the benefits of Partnership and traditional long-term care 
insurance policyholders. We also describe the data and methods we used 
to assess income, assets, age, gender, and the marital status of 
Partnership program long-term care insurance policyholders, traditional 
long-term care insurance policyholders, and people without long-term 
care insurance. 

Examining Long-Term Care Insurance Benefits Purchased by Partnership 
Policyholders and Traditional Long-Term Care Insurance Policyholders: 

We examined the benefits purchased by Partnership long-term care 
policyholders and the benefits purchased by traditional long-term care 
policyholders, using 2002 through 2005 data from two sources. Our data 
source for the benefits purchased by Partnership policyholders was the 
Uniform Data Set (UDS)--a data set supplied to us by each of the four 
states with Partnership programs that contained information on all 
Partnership policyholders who had purchased long-term care Partnership 
policies. The UDS was developed collaboratively among the four states 
with Partnership programs, insurers, the National Program Office at the 
Center on Aging, University of Maryland, and the Program Evaluator, 
Laguna Research Associates. The UDS contains information submitted by 
insurers with Partnership policyholders and summarized by each of the 
states on a quarterly basis. Insurers are required to submit data to 
the state Partnership program on: (1) newly insured people,[Footnote 
73] (2) people who dropped their policies, (3) applicants for insurance 
who were assessed for long-term care insurance eligibility, and (4) the 
amount of payments for services and utilization. We used the data set 
for newly insured people to analyze the benefits purchased by 
Partnership policyholders. These data contain information on daily 
benefit amounts, the length of the benefit period, the length of the 
elimination period, and the type of coverage, including whether the 
coverage is comprehensive coverage or for facilities only. To obtain 
data about the benefit characteristics of insurance policies purchased 
by traditional long-term care policyholders, we surveyed five large 
insurance companies selling long-term care insurance. We selected these 
five insurance companies on the basis of the total number of policies 
and amount of annualized premiums in effect in the individual market, 
as of December 31, 2004. The five insurance companies were AEGON 
USA,[Footnote 74] Bankers Life and Casualty Company, Genworth 
Financial, John Hancock Life Insurance Company, and Metropolitan Life 
Insurance Company. All five insurance companies sold policies in the 
individual market, and two of the five carriers--John Hancock Life 
Insurance Company and Metropolitan Life Insurance Company--were also 
among the five largest carriers that sold products in the group market. 
We requested data on the number of enrollees in the individual market 
who chose selected benefit options for new long-term care insurance 
policies sold from July 1, 2002, to March 31, 2005. We collected data 
on coverage types, daily benefit amounts, elimination periods, benefit 
periods, inflation protection options, and optional benefits offered. 

Examining Income and Asset Distributions Among Partnership 
Policyholders and Comparison Populations in Two Partnership States and 
Nationally: 

We used three data sources to examine the income and assets of 
Partnership policyholders, traditional long-term care insurance 
policyholders, and people without long-term care insurance: Partnership 
program surveys of Partnership policyholders; the 2004 American 
Community Survey (ACS); and the 2004 Health and Retirement Study (HRS). 

To examine the household income and household assets of Partnership 
policyholders, we used data from Partnership program surveys of a 
sample of Partnership policyholders at the time they first purchased 
insurance coverage. We restricted our analysis of the income and assets 
of Partnership policyholders to surveys conducted by the California and 
Connecticut Partnership programs because the Indiana Partnership 
program's data were not sufficiently detailed to include in our 
analysis, and the New York Partnership program was not able to provide 
us with data from recent years. In addition, because the surveys were 
of a sample of Partnership policyholders--40 percent of Partnership 
policyholders in California and 50 percent of Partnership policyholders 
in Connecticut--we increased the number of observations by analyzing 
more than 1 year of data. We included data from 2003 and 2004 for 
California, and data from 2002 through 2005 for Connecticut. 

To approximate the household income of individuals without long-term 
care insurance in California and Connecticut, we used the 2004 ACS. 
Household asset information was not available in these states. The ACS 
is conducted by the Census Bureau, as a part of the Decennial Census 
Program, and provides information about the characteristics of local 
communities. The ACS publishes social, housing, and economic 
characteristics for demographic groups, including household income and 
assets, covering a broad spectrum of geographic areas in the United 
States and Puerto Rico. It is the largest household survey in the 
United States, with an annual sample size of about 3 million. In order 
to make appropriate comparisons between the income data from the 
California and Connecticut Partnership program surveys and the ACS, we 
restricted our calculations in the income analysis to respondents who 
were aged 55 and over, when we calculated our household income 
ranges.[Footnote 75] In our analysis, we used the ACS state population 
data as a proxy for people without any long-term care insurance. 
Approximately 12 percent of people over age 55 have long-term care 
insurance, so our measure is likely to contain approximately 88 percent 
of people without long-term care insurance. 

To examine national-level data on household income and assets of 
individuals with and without long-term care insurance, we used 
information from the 2004 HRS, the most recent year available for that 
survey data set. The HRS is a longitudinal national panel survey of 
individuals over age 50, and is sponsored by the National Institute on 
Aging and conducted by the University of Michigan. The HRS includes 
individuals who were not institutionalized at the time of the initial 
interview and tracks these individuals over time, regardless of whether 
they enter an institution. Researchers conducted the initial interviews 
in 1992 in respondents' homes and conducted follow-up interviews over 
the telephone every second year thereafter. HRS questions pertain to 
physical and mental health status, insurance coverage, financial status 
(including household income and assets), family support systems, 
employment status, and retirement planning. We used data from the HRS 
to calculate the household income distribution nationally for people 
with long-term care insurance and for people without long-term care 
insurance. To make our income analysis of HRS data consistent with the 
income analysis of Partnership policyholders and individuals without 
long-term care insurance in California and Connecticut, we restricted 
the HRS income analysis to individuals age 55 and over. The HRS data 
for people with insurance do not differentiate between Partnership and 
traditional insurance policyholders and approximately 2 percent of 
people with long-term care insurance nationwide have Partnership 
policies. Therefore, although the HRS data may contain a small number 
of Partnership policyholders, about 98 percent of all long-term care 
policyholders are likely to have traditional long-term care insurance. 

Examining Demographic Characteristics--Age, Gender, and Marital Status--
of Partnership Policyholders and Other Populations in Partnership 
States and Nationally: 

To compare the age, gender, and marital status of Partnership 
policyholders and other populations in Partnership states and 
nationally, we used data from the UDS from 2002 through 2005 and the 
HRS data from 2004. The UDS data contain information on Partnership 
policyholders, while the HRS was used to calculate estimates for 
traditional policyholders and for those people without long-term care 
insurance. 

Data Reliability: 

We took several measures to ensure the reliability of the data used in 
this report. For the UDS and Partnership policyholder surveys conducted 
by the states with Partnership programs, we interviewed the officials 
at the state offices familiar with these data in order to establish 
whether the data were reliable and suitable for the purposes of our 
report. For the GAO survey of traditional long-term care insurance 
carriers, we interviewed each of the carriers about their data to 
ensure the accuracy and reliability of the data provided. For the ACS 
and HRS data sets, we collected and examined the data documentation and 
sought information from the providers of the data. In addition, we took 
steps to ensure that the data were valid and within reasonable ranges. 
To do this, where appropriate, we examined the distribution of our key 
variables, calculating estimates of central tendency, ranges, and 
frequencies, missing values, and sample size. We determined that these 
data sets were sufficiently reliable for the purposes of this report. 

We performed our work from September 2005 through May 2007 in 
accordance with generally accepted government auditing standards. 

[End of section] 

Appendix II: Explanation of the Simplifying Assumptions Used in the 
Illustrative Scenarios: 

To analyze the impact of the Partnership programs on Medicaid, we used 
scenarios that are illustrative of the options individuals have to 
finance their care. This appendix provides additional information on 
the construction of the three scenarios and how adjusting the 
simplifying assumptions affects the length of time it takes for the 
individual to become eligible for Medicaid in the scenarios. 

Illustrative Scenarios for Time Taken to Become Eligible for Medicaid: 

We developed three illustrative scenarios based on the three basic 
options that are available to an individual for financing his or her 
long-term care: (1) self-financing without any long-term care 
insurance, (2) financing using traditional long-term care insurance, 
and (3) financing using Partnership long-term care insurance. For 
illustrative purposes, our scenarios are based on an individual who 
owns assets worth $300,000. If the individual has a long-term care 
insurance policy, this policy covers 3 years of nursing facility care 
at a cost of $70,000 per year: that is, the policy covers $210,000 of 
nursing facility care costs. We then used the scenarios to compare the 
time it would take for the individual to become eligible for Medicaid 
using each of the three financing options.[Footnote 76] 

* Self-financing Without Any Long-term Care Insurance (Scenario C): The 
calculations underlying the self-financing scenario are the simplest. 
If the individual self-finances in the absence of the Partnership 
program, the individual pays for his or her own care, essentially 
spending his or her assets down to Medicaid eligibility thresholds 
before becoming eligible for Medicaid. In this case, the number of 
years it takes for the individual to become eligible for Medicaid 
equals the total assets[Footnote 77] divided by the cost of a year of 
nursing facility care. In our example, this is $300,000 in assets 
divided by $70,000 in nursing facility costs per year, or about 4.3 
years until the individual is eligible for Medicaid. The equation for 
this calculation can be expressed as: 

Equation 1: Self-financing time to Medicaid: 

= Assets/cost per year: 

* Traditional Long-term Care Insurance (Scenario B): Next we calculated 
the time it would take to become Medicaid eligible if the same 
individual has a traditional long-term care insurance policy. In this 
scenario, the insurance policy pays for care up to the limits of the 
policy. After the insurance policy is exhausted, the individual spends 
his or her own assets to pay for long-term care. Once the assets are 
exhausted, the individual is eligible for Medicaid. In our example, the 
individual has a traditional long-term care insurance policy worth 3 
years of care in a nursing facility or $210,000. The time to Medicaid 
in this example is $210,000 in insurance coverage plus $300,000 in 
assets, all divided by $70,000 in nursing facility costs per year, or 
about 7.3 years. The equation for this calculation can be expressed as: 

Equation 2: Traditional insurance time to Medicaid: 

= (Insurance policy value + assets)/cost per year: 

* Partnership Long-term Care Insurance (Scenario A): Finally, we 
calculated the time it would take to become Medicaid eligible if the 
same individual has a Partnership policy. In this scenario, the 
insurance pays for care up to the limits of the policy, and then the 
individual has to self-finance using unprotected assets. Once those 
assets are exhausted, the individual is eligible for Medicaid because 
protected assets do not have to be spent on care. In a dollar-for- 
dollar model, the protected assets are equivalent to the value of the 
insurance policy. The time to become eligible for Medicaid in this 
example is $210,000 in insurance coverage plus $90,000 in unprotected 
assets, all divided by $70,000 in nursing facility costs per year or 
4.3 years. The equation for this calculation can be expressed as: 

Equation 3: Partnership insurance time to Medicaid: 

= (Insurance policy value + unprotected assets)/cost per year: 

Under the assumptions of our illustrative scenarios, with a dollar-for- 
dollar policy, the sum of the insurance policy and the unprotected 
assets is equal to total assets: the same as for the self-financing 
scenario. Therefore, the time to Medicaid is the same for the 
individual in both the Partnership and self-financing scenarios, and it 
is greater if the individual purchases a traditional policy than if he 
or she purchases a Partnership policy. These relationships are shown 
graphically in the report in figure 1. 

Evaluating the Effects of Adjusting the Assumptions Underlying the 
Illustrative Scenarios: 

Underlying our illustrative scenarios were several simplifying 
assumptions. When we adjusted these simplifying assumptions, we found 
that some resulted in no change, some resulted in accelerated Medicaid 
eligibility, and some resulted in delayed Medicaid eligibility. 
Overall, we believe that the survey data showing that 80 percent of 
Partnership policyholders would have purchased a traditional long-term 
care insurance policy in the absence of the Partnership program 
represent compelling evidence that, as currently structured, the 
Partnership programs are unlikely to result in Medicaid savings. 

While some of the 20 percent of Partnership policyholders who would 
have self-financed their care and become eligible for Medicaid may 
represent a source of savings, others may represent a source of 
increased spending and still others will result in neither savings nor 
spending. We believe that in the aggregate the savings potential from 
the Partnership programs of these 20 percent of individuals is 
outweighed by the 80 percent of individuals who will likely result in 
increased Medicaid spending. Specifically, we made the following 
simplifying assumptions in our scenarios and discuss the effect on our 
results of adjusting these assumptions: 

* The individual depicted in the scenarios has assets and benefits that 
are typical of many individuals with long-term care insurance. The 
individual depicted in the scenarios has $300,000 in assets and 3 years 
of long-term care insurance--assets and benefits that are typical of 
many individuals with long-term care insurance. The individual also 
receives long-term care in a nursing facility with costs for a year of 
care of $70,000 that are roughly equivalent to average nursing facility 
costs nationwide in 2004. In our example, the individual has assets of 
$300,000 and, in two of our scenarios, a long-term care policy worth 
$210,000. The cost of a year of nursing facility care is $70,000. As 
long as the individual has assets that are greater than the value of 
the insurance policy, we can insert any numbers into equations (1), 
(2), and (3), and the individual becomes eligible for Medicaid at the 
same time as with a Partnership policy and if he or she self-finances, 
but it takes longer if the individual has traditional insurance. 

* The individual spends eligible assets to zero as a condition for 
Medicaid eligibility. While states allow individuals to keep a small 
amount of assets, these assets are in addition to anything that needs 
to be spent to become eligible for Medicaid. Including these assets has 
little impact on the scenarios since the individual can keep the same 
assets in all three scenarios, and these assets are outside of any 
spend-down requirement. Using our examples above, we decrease the 
assets in equations 1 and 2, and decrease the unprotected assets in 
equation 3 by the amount of assets the individual is allowed to keep. 
We find that having a traditional policy will still result in more 
years to Medicaid eligibility than having a Partnership policy or self- 
financing, and the Partnership and self-financing scenarios still 
result in the same time to Medicaid eligibility. 

* The individual purchases the same amount of insurance benefits under 
the Partnership and traditional long-term care insurance scenarios. 
While this is our simplifying assumption, we recognize that the 
Partnership policyholder might have more coverage than if he or she had 
purchased a traditional policy because of the extra benefit 
requirements of Partnership policies, such as inflation protection, 
that are not required of traditional policies. Provided the individual 
has assets that are no less than the value of the insurance policies, 
the Partnership policyholder will still not take as long to reach 
Medicaid eligibility as he or she will with a traditional policy, 
although the difference is narrower than if the benefits are the same. 
For example, if we change the value of the benefits in the traditional 
policy to $150,000 (and keep the value of the Partnership policy at 
$210,000 and the value of assets at $300,000) the equation for the 
traditional policy becomes ($150,000 + $300,000)/$70,000, which is 
about 6.4 years and is still longer than the approximate 4.3 years with 
the Partnership policy but less than the approximate 7.3 years expected 
if the policies in the traditional and Partnership scenarios were the 
same. 

* The individual has income below Medicaid eligibility thresholds. We 
made this assumption because Medicaid income eligibility thresholds 
vary across states. However, increasing the individual's income up to 
Medicaid eligibility thresholds has no impact on the scenarios since 
the individual can keep the same income in all three scenarios. If the 
income exceeds Medicaid eligibility thresholds, the individual is 
ineligible for Medicaid in all three scenarios. 

* The individual's assets are greater than the value of the insurance 
policy. We assumed that most individuals would have assets that are 
worth more than the value of the insurance policy. Individuals have a 
disincentive to purchase long-term care insurance with a value 
exceeding their assets because it might increase their premium 
unnecessarily. While we do not have information about the amount of 
assets that Partnership policyholders have at the time they use their 
benefits, available evidence suggests that most individuals do not 
overinsure the value of their assets at the time of purchase, though 
their status could change over time. Survey data from California and 
Connecticut show that while 53 percent of Partnership policyholders 
have more than $350,000 worth of household assets at the time of 
purchase, only about 32 percent of these Partnership policyholders have 
more than 5 years of coverage equal to $350,000.[Footnote 78] 

However, it is possible that some policyholders will spend some or all 
of their assets by the time they require long-term care and will have 
more insurance than assets. If we modify our example above, and assume 
the individual's insurance policy has greater value than the assets in 
our scenarios, we see that with a Partnership policy, the individual 
will still become eligible for Medicaid sooner than with a traditional 
policy, but later than if he or she self-financed. Therefore, for the 
20 percent of individuals who would have self-financed their care in 
the absence of a Partnership program, and who have more insurance than 
assets, the Partnership program results in savings to Medicaid. 
Specifically, if we assume the insurance policy is worth $210,000, and 
the individual has assets equal to $150,000, we obtain the following 
results from our scenarios: 

Self-finance: assets/cost per year = $150,000/$70,000 = 2.1 years: 

Traditional insurance: (insurance + assets) cost per year = ($210,000 + 
$150,000)/$70,000 = 5.1 years: 

Partnership insurance: (insurance + unprotected assets)/cost per year 
= ($210,000 + 0)/$70,000 = 3 years: 

* The individual is unmarried. In our illustrative scenarios, we assume 
the individual is unmarried--the most likely marital status of 
policyholders at the time nursing home care is required. On the other 
hand, if the individual is married, Medicaid allows spouses to keep a 
certain amount of jointly owned assets (i.e., half of the value of the 
assets up to a maximum amount that was approximately $100,000 in 2007). 
In general, the spousal exemption that is deducted from assets would be 
the same across all three scenarios and would not affect the basic 
relationships among the three scenarios unless the net assets after the 
spousal exemption are of less value than the insurance policy. If the 
amount of insurance exceeds the value of assets net of the spousal 
exemption, there is a potential for Medicaid savings for a Partnership 
policyholder who would have self-financed. If that individual would 
have purchased a traditional policy, Medicaid spending would increase. 
Our scenarios illustrate this point. If we assume the individual is 
married and the spouse has already taken the spousal exemption such 
that the individual's assets are $300,000, the results do not change 
and our original formulas remain intact. Alternatively, if we assume 
the individual's spouse is entitled to half of the household assets of 
$300,000, up to the maximum of $100,000, then our results do change and 
the policyholder becomes overinsured. In this instance, if the 
individual self-finances, the spousal exemption would be $100,000, 
leaving the individual with $200,000 in assets. If the individual has 
traditional insurance, the spouse is also entitled to $100,000. 
However, if the individual has a Partnership policy, $210,000 of the 
assets are protected, leaving $90,000 in unprotected assets. The spouse 
would be entitled to half of the $90,000, or $45,000. The formulas are 
presented below. 

Self-finance: assets/cost per year = $200,000/$70,000 = 2.9 years: 

Traditional insurance: (insurance + assets)/cost per year = ($210,000 + 
$200,000)/$70,000 = 5.9 years: 

Partnership insurance: (insurance + unprotected assets)/cost per year 
= ($210,000 + $45,000)/$70,000 = 3.6 years: 

* The individual uses the same long-term care services in all three 
scenarios. An individual who self-finances might have an incentive to 
use fewer or less expensive services than if he or she were insured by 
either a Partnership or traditional policy because the individual would 
be paying for services. If the individual uses fewer services when self-
financing, the assets last longer, enabling the individual to pay for 
care longer and postponing Medicaid eligibility. In this situation, the 
cost per year of self-financing would be smaller than if he or she had 
either Partnership or traditional insurance. This would result in an 
increase in the time it takes to become Medicaid eligible for a person 
who self-finances relative to what it would have taken if he or she had 
purchased either a Partnership or traditional insurance policy. 

* The individual does not save premiums paid if he or she would have 
self-financed their care such that assets are equal in all three 
scenarios. We made this assumption to make our scenarios easier to 
understand. Premium payments may be substantial--potentially as much as 
$3,000 per year--so it is possible that if the individual would have 
saved their premium payments by instead self-financing his or her long- 
term care, the individual would have more assets than either 
Partnership or traditional policyholders would when they begin to use 
their benefits. If this is the case, by self-financing, the individual 
would have more assets to pay for long-term care before becoming 
eligible for Medicaid, which would delay the time to Medicaid. 
Therefore, individuals who purchase Partnership policies would have 
saved their premium dollars and not purchased long-term care insurance 
represent a potential cost to the Medicaid program. Using our examples 
above and assuming 15 years of payments saved at $3,000 per year, by 
self-financing, the individual would save $45,000 in additional assets 
that would otherwise have been spent on Partnership premiums. 
Therefore, the self-financing individual has assets of $345,000. Using 
our equation we see that the time to Medicaid is delayed ($345,000 / 
$70,000 = 4.9 years) if the individual self-finances, while relative to 
this option a Partnership policy would accelerate the individual's time 
to Medicaid by 0.6 years. In this case, the Partnership and traditional 
policy scenarios would not change because premiums are required to be 
identical for the Partnership and traditional polices. 

* The individual is equally likely to transfer assets in all three 
scenarios. An individual who self-finances or uses traditional 
insurance might be more likely to transfer assets to a spouse or other 
family members than he or she would with a Partnership policy, because 
assets are protected under Partnership policies. If the individual self-
finances and transfers assets, he or she would likely take less time to 
become eligible for Medicaid than with a Partnership policy (and 
assuming no transfers with the Partnership policy), resulting in 
Medicaid savings. If the individual would have purchased traditional 
insurance, the amount of assets transferred would have to be equal to 
at least the value of the insurance policy purchased in order for the 
Partnership program to result in Medicaid savings. If the amount of 
asset transfer is less than the value of the insurance policy, the 
increase in Medicaid spending attributable to the Partnership program 
would be less than without the asset transfer, but would still be an 
increase. 

[End of section] 

Appendix III: Comments from the Department of Health & Human Services: 

Office of the Assistant Secretary for Legislation:  
Department Of Health And Human Services: 
Washington, D.C. 20201: 

Mar 22 2007: 

Mr. John Dicken: 
Director, Health Care: 
U.S. Government Accountability Office: 
Washington, DC 20548: 

Dear Mr. Dicken: 

Enclosed are the Department's comments on the U.S. Government 
Accountability Office's (GAO) draft report entitled, "Long-Term Care 
Insurance: Partnership Programs Include Benefits That protect 
Policyholders and Are Unlikely to Result in Medicaid Savings" (GAO-07- 
231), before its publication. 

We acknowledge the complexity of an analysis of this nature, and 
appreciate GAO's decision to base their findings on simplified 
assumptions, however we do not believe the results of this methodology 
should be considered conclusive. We believe that the simplified 
scenarios are flawed in their lack of accounting for individuals who do 
engage in estate planning prior to expending all of their own funds on 
long-term care costs. Even if addressed, it is unlikely that the data 
sources used in this report would have yielded accurate data on this 
factor. Over the past 15 years a number of studies have been conducted 
and published which used sound research methods, and States themselves 
have analyzed actual data based on more than a decade of experience. We 
believe a balanced report should include a review of this literature 
and State experience. Consequently, we believe that the report's 
Concluding Observations should acknowledge the limitations of the study 
methodology and reference the findings of other researchers and States' 
experience to be considered along with GAO conclusions. 

We also believe the report gives insufficient attention to the 
possibility that the availability of Partnership policies will result 
in a reduction of efforts to transfer assets for less than fair market 
value in order to become eligible for Medicaid. 

The Department has provided several technical comments directly to your 
staff. 

The Department appreciates the opportunity to review and comment on 
this report. 

Sincerely, 

Signed for: 

Vincent J. Ventimiglia: 
Assistant Secretary for Legislation: 

[End of section] 

Appendix IV: Comments from the Four States with Partnership Programs, 
California, Connecticut, Indiana, and New York: 

Mar 26 2007: 

John E. Dicken: 
Director, Health Care: 
United States Government Accountability Office: 
Washington, DC 20548: 

RE: Comments on Proposed Report Entitled Long-Term Care Insurance: 
Partnership Programs Include Benefits That Protect Policyholders and 
Are Unlikely to Result in Medicaid Savings (GAO-07-231): 

Dear Mr. Dicken: 

Thank you for the opportunity to comment on the draft copy of the 
proposed "Long-Term Care Insurance, Partnership Programs Include 
Benefits That Protect Policyholders and Are Unlikely to Result in 
Medicaid Savings". 

The Department of Health Services, California Partnership for Long-Term 
Care commends the U.S. Government Accountability Office for its efforts 
in determining program efficacy, particularly as it pertains to the 
Partnership long-term care programs. California also shares the GAO's 
desire to ascertain program efficacy. Intact, the California 
Partnership for Long-Term Care conducts yearly evaluations of the 
Program to determine to what extent it is meeting its program goals and 
is also committed to finding ways to lessen Medicaid's fiscal exposure. 

We appreciate the GAO's analysis of the Partnership program's impact on 
Medicaid, but have reservations about the underlying assumptions used 
in developing the scenarios designed to determine the potential costs 
or savings to Medicaid, particularly the assumptions made about the 
scope, duration and economic value of benefits under a Non-Partnership 
policy. We believe the GAO did not give adequate consideration to 
critical differences. in elimination periods, benefit payment levels, 
inflation protection, and asset shielding versus asset transfers. These 
reservations give us reason to believe the report, in its present 
iteration, is flawed in its analysis. We will expand on these 
reservations in Attachment A. Based on our own Program evaluations and 
analyses, we are confident that the Partnership program results in 
short-term as well as long-term cost savings to Medicaid. 

Thank you again for the opportunity to comment on your report. Please 
feel free to contact Mr. Mark S. Helmar, Chief, Office of Long-Term 
Care at (916) 440-7534 if you should have any questions. 

Sincerely, 

Signed by: 

Tom McCaffery: 
Chief Deputy Director: 

cc: Stan Rosenstein: 
Deputy Director: 
Medical Care Services: 

Mark S. Helmar, Chief: 
Office of Long-Term Care: 

MH/eh/G:/OLTC/CPLTC/GAO Report Response Message: 

Attachment A California Partnership for Long-Term Care Comments on 
Draft GAO Report (GAO-07-231): 

A. Omission Of Key Assumptions From The Financing Scenarios: 

The GAO developed three scenarios as the basis for determining which of 
the three was more protective of Medicaid fiscal exposure. These 
scenarios are: 

A. Financing long-term care using a Partnership policy. 

B. Financing long-term care using a traditional/Non-Partnership policy. 

C. Self-financing. 

The GAO financing scenarios presume that an individual purchasing a Non-
Partnership long-term care insurance (Itci) policy would purchase the 
same level of benefits as a person purchasing a Partnership policy. 
This runs counter to the GAO's own conclusions that Partnership 
requirements such as yearly compounded inflation protection and minimum 
daily benefits make for more extensive/richer policies under the 
Partnership. It is not accurate to assume that a Non-Partnership policy 
would have the same minimum daily benefit or the same level of 
inflation protection (if any at all) as a Partnership policy. In fact, 
California's most recent Non-Partnership policy sales 
experience[Footnote 79] (year 2005) shows that only 57% of policy sales 
contain yearly compounded inflation protection and 49% of sales 
contained a daily benefit below the minimum required in a Partnership 
policy in the year 2005. Failure to factor in that Non-Partnership 
policies have lesser benefits, particularly as related to inflation 
protection, significantly skews the analysis in favor of the Non-
Partnership scenario. 

We also believe it is imperative to factor the impact of yearly 
compounded inflation protection coupled with a minimum daily benefit 
since long-term care insurance is generally utilized many years after 
purchase. California's experience in this area reveals that over the 
past 28 years (1980 - 2007), the statewide average daily private pay 
rate for nursing facility care has risen at an average annual rate of 
5.9%.[Footnote 80] This effectively doubles the cost of care every 14 
years. 

We agree with GAO's approach to simplifying the financing scenarios by 
ignoring the marital status variable. However, we believe that GAO has 
omitted other important factors pertaining to elimination periods, 
policyholder payments for LTC costs above the benefit amounts in their 
policies, and asset transfers. Each of these factors has a direct 
impact on the amount of policyholder assets available to continue 
paying for LTC after exhaustion of policy benefits. The differences in 
these factors between Partnership and Non-Partnership policies 
materially affect the length of time after Itci benefits are exhausted 
before a policyholder qualifies for Medicaid. 

For example, both Partnership and Non-Partnership policyholders will be 
spending personal assets to pay for their LTC during the elimination 
period. Since Partnership policies (based on Table 1 of your report) 
have an average elimination period longer than Non-Partnership 
policies, Partnership policyholders will spend more of their assets 
during the elimination period than Non-Partnership policyholders. 
However, Partnership policies provide a higher level of daily benefits 
than Non-Partnership policies, resulting in more ongoing costs to Non- 
Partnership policyholders during their active benefit period. These 
higher costs reduce Non-Partnership assets faster, resulting in a much 
shorter time period before they qualify for Medicaid benefits. 
Additionally, the shortened time period for which Non-Partnership 
policyholders qualify for Medicaid is additionally truncated by the 
lack of inflation protection in nearly a quarter of Non-Partnership 
Itci policies. Over time, these policies will pay a lesser percent of 
the daily costs of LTC services, requiring policyholders to use more of 
their assets during the time they are drawing Itci benefits, thereby 
qualifying for Medicaid LTC services even more quickly. 

We believe GAO's analyses should have included these factors to arrive 
at a more realistic comparison of Partnership and Non-Partnership 
policies and their potential for creating or avoiding costs to Medicaid 
programs. We would be happy to work jointly with the GAO to incorporate 
these factors into a revised analysis of the financial scenarios 
covered by the study. 

B. Asset Transfer Behavior Impacts Comparison: 

It is difficult to measure the degree to which individuals have used 
asset transfer techniques as a means to achieve artificial 
impoverishment so they can use Medicaid as inheritance insurance. But 
the fact remains that these asset transfer techniques exist even though 
the Deficit Reduction Act makes the asset transfer rules tougher. 
California's most recent survey data (year 2005) shows that 24% of 
respondents indicated they purchased a Partnership policy as an 
alternative to transferring assets in order to qualify for Medicaid. We 
infer that at least this level of asset transfer behavior exists among 
Non-Partnership policyholders. This would significantly narrow the 
difference in the fiscal impact Partnership and Non-Partnership 
policies have on Medicaid costs. 

C. California Partnership For Long-Term Care Purchaser Survey Data: 

The California Partnership for Long-Term Care uses the same cost 
effectiveness measure developed by the Connecticut Partnership. This 
measure is based on Partnership purchaser survey data used in 
conjunction with actual Partnership claims data. We shared our survey 
information with the GAO as part of this study. 

As we understand it, GAO based the development of Scenario B on a 
single survey question, that being, "Would you have purchased long-term 
care insurance in the absence of the Partnership?" While this question 
is important, an equally important question is, "Did the California 
Partnership for Long-Term Care influence your decision to purchase long-
term care insurance?" We believe in-depth analysis of Medicaid costs or 
savings cannot be based on a single question. Such an analysis must be 
made on a combination of questions that will yield a more accurate 
understanding about the motivations and purchasing decisions of Itci 
consumers. 

California's most recent survey (year 2005)[Footnote 81] shows that 82% 
of survey respondents (CPLTC policyholders) indicated they would have 
purchased long-term care insurance in the absence of the Partnership. 
24% of these respondents stated they would have transferred assets in 
the absence of the Partnership. This leads us to believe that many 
Partnership policyholders purchase these policies to protect assets, 
whereas many Non-Partnership policyholders still contemplate (and often 
effect) the transfer of assets to become eligible for Medicaid, on the 
chance they will outlive their Itci policy benefits. 

Survey data also reveals that 44% of those who indicated that they 
would have purchased Itci in the absence of the Partnership also 
indicated that the Partnership influenced their purchasing decisions. 
In fact the purchase of Itci, whether the policies are Partnership or 
Non-Partnership, result in cost avoidance/savings to Medicaid programs. 
Policyholders who die before exhausting Itci benefits represent direct 
cost avoidance to Medicaid. The majority of those who exhaust their 
policy benefits still have a significant amount of assets to continue 
financing their LTC without ever qualifying for Medicaid. Those that do 
qualify for Medicaid have delayed their reliance on publicly funded LTC 
services for several years* because of their Itci coverage. 

[End of California Comment letter] 

State Of Connecticut: 

Office Of Policy And Management:
Policy Development And Planning Division: 

The Connecticut Partnership For Long-Term Care:  

March 8, 2007: 

John E. Dicken: 
Director, Health Care: 
United States Government Accountability Office: 
Washington, DC 20548: 

RE: Comments on Proposed Report Entitled Long-Term Care Insurance: 
Partnership Programs Include Benefits That Protect Policyholders and 
Are Unlikely to Result in Medicaid Savings (GAO-07-231): 

Dear Mr. Dicken: 

Thank you for the opportunity to comment on the GAO proposed report on 
the Partnership for Long-Term Care programs (GAO-07-231). 

While we appreciate the GAO analysis of the impact of the Partnership 
for Long-Term Care programs, we must raise several objections to the 
underlying assumptions used in the financial scenarios devised for the 
purpose of determining potential Medicaid savings or costs due to the 
presence of a Partnership for Long-Term Care program. 

1. Narrow usage of Connecticut survey data: 

The most troubling aspect of the GAO financing assumptions is the 
narrow application of data available from the Connecticut survey of 
purchasers of Partnership policies. The report relies exclusively on 
the answer to a single survey question: "Would you have purchased long- 
term care insurance in the absence of the Partnership?", while 
completely ignoring the equally relevant survey question "Did the 
Connecticut Partnership for Long-Term Care influence your decision to 
buy long-term care insurance?". While 68% of all survey respondents 
indicated that they would have purchased a long-term care insurance 
policy in the absence of the Partnership, 67% of respondents also 
indicated that the Partnership influenced their decision to purchase 
and, more importantly, 54% of those who indicated they would have 
purchased in the absence of the Partnership also reported that the 
Partnership influenced their decision.[Footnote 82] Therefore, it is 
not absolutely clear, as your analysis assumes, that the 68% who 
indicated they would have purchased in the absence of the Partnership 
would actually have done so, nor can it be assumed that, if they did 
purchase, they would have purchased benefits identical to those 
included in their Partnership policy. 

Also of significance is the fact that, of the 68% of respondents who 
reported they would have purchased long-term care insurance in the 
absence of the Partnership, 31 reported that they would have 
transferred assets in the absence of the Partnership. As intended, the 
responses to this series of survey questions provide a clearer 
understanding about purchaser motivation and intention and underscores 
the weakness inherent in relying on the responses to a single survey 
question as the basis for an entire analysis of potential savings or 
costs to Medicaid. 

The Connecticut Partnership for Long-Term Care has developed its own 
cost-effectiveness measure based on Partnership purchaser survey data 
and actual Partnership claims data. Rather than just utilizing the one 
question related to buying long-term care insurance in the absence of 
the Partnership, we examine all three questions as noted above. 
Individuals who 1) indicate they would have bought in the absence of 
the Partnership; 2) indicate the Partnership had no influence on their 
purchase decision; and 3) did not indicate they would have transferred 
assets in order to access Medicaid in the absence of the Partnership 
are considered potential costs to Medicaid. However, their potential 
cost to Medicaid must be viewed in light of the benefits they have 
purchased and the average amount of benefits used by actual Partnership 
claimants who have died after using their benefits (or, in other words, 
their claims are closed). Individuals meeting these three criteria who 
have purchased benefits that exceed the average actual claim do not 
pose any potential cost to Medicaid. Individuals in this category who 
purchase benefits that are less than the average claim under a 
Partnership policy are potential costs. However, this group only 
represents one half of one percent of purchasers. 

Individuals who indicate that 1) they purchased a Partnership policy as 
an alternative to transferring assets and 2) indicated the Partnership 
influenced their decision or noted they would not have purchased long- 
term care in the absence of the Partnership are included in the group 
that could generate potential savings to the Medicaid program. All 
other purchasers are considered budget neutral. 

Our analysis has determined that, to date, Connecticut's Medicaid 
program has saved close to $4 million due to the presence of the 
Partnership program and that those savings will only grow over time 
assuming the survey responses and claim data remain consistent. 

This type of in-depth analysis is necessary to begin to answer the 
complex question of what impact the Partnership programs will have on 
Medicaid costs. Given the fact that the impact of the Partnership on 
Medicaid is based on the determination of behavior in the absence of 
the Partnership, an obviously hypothetical situation, it is vital that 
such an analysis not be narrowly focused on one isolated variable. 

2. Lack of recognition of asset transfers and establishment of trusts: 

The report only outlines three possible long-term care financing 
scenarios: 1) purchase a Partnership long-term care insurance policy; 
2) purchase a non-Partnership long-term care insurance policy; and 3) 
pay out-of-pocket. 

While it is difficult to accurately measure the extent to which 
individuals transfer and shelter assets in order to access Medicaid, we 
know with a certainty that the practice exists. Even with the passage 
of tougher asset transfer rules under the Deficit Reduction Act (DRA), 
this type of behavior will continue to be marketed and utilized as a 
means of accessing Medicaid and preserving assets. More importantly, 
the very same Connecticut survey data that was used in the GAO analysis 
reports that 27% of respondents indicated that one of the reasons they 
purchased a Partnership policy was as an alternative to transferring 
assets in order to access Medicaid. This data, which was not even 
mentioned in the GAO report, should be factored into any responsible 
analysis of what purchaser behavior might be in the absence of a 
Partnership program. Another relevant consideration is that the 
Connecticut survey data is voluntary in nature and is reported directly 
to State government, which means that 27% of respondents have 
voluntarily revealed to the State of Connecticut that they would engage 
in an improper transfer of assets in order to qualify for Medicaid 
benefits. Logic would lead one to believe that many more individuals 
might be inclined to engage in the same behavior without being quite so 
candid about their intentions. 

3. Contradictory assumptions regarding benefits under non-Partnership 
policies: 

The GAO financing scenarios assume that an individual purchasing a non- 
Partnership long-term care insurance policy would purchase the same 
level of benefits if purchasing a Partnership policy. This seems to 
contradict GAO's own conclusions that, due to the requirements under 
the Partnership, such as minimum daily benefits and compound inflation 
protection, individuals will have richer benefits under their 
Partnership plans. It is not fair or accurate to assume that a non- 
Partnership policy would have the same daily benefit and the same level 
of inflation protection, if any at all, that would be included in a 
Partnership policy. Assuming the non-Partnership policy had lesser 
benefits, especially related to inflation protection, would have a 
dramatic impact on the analysis of the GAO financial scenarios. While 
the GAO report uses constant benefit levels for analysis purposes, in 
reality the impact of compound inflation protection must be taken into 
account since long-term care insurance is typically coverage that is 
utilized many years after initial purchase. 

For the reasons noted above, we believe the GAO report is flawed in its 
analysis of the potential impact of Partnership for Long-Term Care 
programs on Medicaid expenditures. Based on our own analyses, we are 
confident that the presence of a Partnership program will result in 
short-and long-term cost savings to Medicaid. 

Thank you again for the opportunity to comment on your report. Please 
feel free to contact me at 860-418-6286 or by email at 
david.guttchen@po.state.ct.us if you have any questions. 

Sincerely, 

Signed by:  

David J. Guttchen: 
Director: 
Connecticut Partnership for Long-Term Care: 

[End of Connecticut Comment letter] 

Indiana Long Term Care Insurance Program: 
Indiana Department of Insurance: 
311 West Washington Street, Suite 300: 
Indianapolis, IN 46204-2787: 
317-233-1470: 
317-232-5251 fax: 

Taking care of tomorrow is just good policy:  

March 8, 2007: 

Mr. John E. Dicken: 
Director, Health Care: 
Unites States Government Accountability Office: 
Washington, DC 20548: 

Re: Report: Long Term Care Insurance: Partnership Programs Include 
Benefits That Protect Policyholders and Are Unlikely to Result in 
Medicaid Savings (GAO-07-231): 

Dear Mr. Dicker: 

On behalf of Carol Cutter, Health Deputy, Indiana Department of 
Insurance, we appreciate the opportunity to review and comment on the 
proposed report on Partnership for Long Term Care Programs. 

I want to clarify a few features of the Indiana partnership program: 

1) Two types of coverage are offered - Comprehensive and Facility Only; 
The facility only policy may cover nursing facility and assisted living 
facility care (not just nursing facility care as stated). 

2) Indiana also requires the use of 5% compound inflation protection. 

3) Both traditional long term care and Partnership policies are 
reviewed by the Indiana Partnership Program office which is part of the 
Indiana Dept. of Insurance. 

The impact of buyer motivation for long term care policies must be 
factored into the savings equation. Even though this factor in purchase 
decisions could be difficult to quantify from surveys, I believe it 
will be a significant component in the future. As the report states, 
the demand for long term care services will be increasing and it will 
be from the baby boomers. The Partnership policies give the buyer more 
control and choice over their care - the desire for independence and 
financial control characteristic of this population group. The asset 
protection component plus the other policy features makes the 
Partnership policy even more valuable and attractive over a traditional 
policy. 

Also as the demand increases, the significance of the Partnership 
program features for consumers has to be weighted. As more consumers 
become aware, understand, and purchase long term care policies both 
traditional and Partnership, the projected number of claimants needing 
services and immediately accessing Medicaid dollars would decrease. 

The awareness campaign, agent training, and state oversight are 
essential components of the program. Consumer education and awareness 
will be critical to addressing the looming crisis for services and 
funding of long term care. 

An additional scenario should be considered in long term care financing 
options. Savings in Medicaid dollars could be realized from individuals 
purchasing Partnership policies instead of seeking out Medicaid 
planning attorneys to shelter assets. 

We appreciate the opportunity to provide comment and additional insight 
on Partnership Programs. We believe the existence of the Partnership 
Program will result in savings to Medicaid and is a critical part of 
addressing the baby boomer crisis. 

Sincerely, 

Signed by: 

Rebecca Vaughan, Director: 
Indiana Long Term Care Partnership Program: 
IDOI, 311 W. Washington St., Ste. 300: 
Indianapolis, IN 46204-2787: 

[End of Indiana Comment letter] 

State Of New York Department Of Health: 
Corning Tower: 
The Governor Nelson A. Rockefeller: 
Empire State Plaza: 
Albany, New York 12237: 

March 20, 2007: 

John E. Dicken: 
Director, Health Care: 
United States Government Accountability Office: 
Washington, DC 20548: 

Re: Comments on Draft Report Entitled Long-Term Care Insurance: 
Partnership Programs Include Benefits That Protect Policyholders and 
Are Unlikely to Result in Medicaid Savings (GAO-07-231): 

Dear Mr. Dicken: 

Thank you for the opportunity to comment on the above-referenced draft 
report. 

While the report correctly highlights the positive benefits included in 
Long-Term Care (LTC) Partnership programs that protect consumers, we 
wish to express our concern about the report's operational assumptions 
used to evaluate Partnership cost-savings, and its limited scope of 
analysis. We found the assumptions do not correctly portray the New 
York State (NYS) Partnership experience with its Medicaid program. In 
fact, the estimate resulting from our own analysis on NYS Medicaid cost-
savings is quite different from what the GAO report concluded. 

Therefore, the report's main conclusion that the Partnership programs 
overall are unlikely to produce savings to the Medicaid program, in our 
opinion, does not reflect the NYS Partnership experience. Further, we 
think that releasing the report in its present form would not provide 
accurate information to policymakers about an innovative and effective, 
alternative method of financing LTC. 

The NYS Partnership's specific comments relative to our issues with the 
report are structured into two parts on the following pages: 

1. general comments; and: 

2. comments specific to the operational assumptions and fiscal 
analysis. 

In addition, Attachment 1 contains comments by the NYS Insurance 
Department, a key member of the NYS Partnership steering board. The 
Insurance Department's comments reflect their expertise in monitoring 
the integrity of the Partnership program in terms of consumer 
safeguards and Medicaid cost containment as these factors merge with 
NYS insurance environment through the Partnership program. 

1. General Comments: 

With the aging of 76 million baby boomers, the need for LTC is 
anticipated to grow rapidly, placing a financial burden on both public 
(Medicaid) and private resources. Faced with this demographic 
imperative and a lack of financial preparedness among baby boomers, the 
NYS Partnership was implemented to provide New Yorkers with an 
alternative and viable financing option to Medicaid estate planning 
and/or spending down lifetime savings. Due to the high cost of LTC in 
NYS and the socioeconomic demographics of the population, the program 
encourages the purchase of Partnership insurance by the many New 
Yorkers who are healthy and can afford the cost of the insurance, but 
can not afford the cost LTC. Such people, absent the Partnership, are 
likely candidates for Medicaid estate planning in NYS to protect their 
assets. 

Thus, the NYS Partnership goals are: 

- to promote LTC insurance planning among New Yorkers who are 
financially and physically eligible for insurance; 

- to encourage shared financial responsibility through affordable, 
comprehensive LTC insurance with the incentive of Medicaid asset 
protection; and: 

- to reduce Medicaid dependency among those who would qualify for 
Medicaid through estate planning and/or the spend-down process. 

Three stakeholders participate in the Partnership: consumers, the 
insurance industry, and NY Medicaid. None of these stakeholders alone 
could achieve the Partnership goals. Absent the NYS Partnership, 
consumers have no reasonable LTC financial planning or payment 
alternative to Medicaid estate planning or the spend-down process, 
resulting in Medicaid dependency. Without helping New Yorkers increase 
personal financial responsibility for LTC, particularly among the baby 
boomers, Medicaid is certain to experience unsustainable growth in 
program costs. Absent consistent public education and agent training 
efforts, traditional LTC insurance is a challenging product to market 
since the insurance has "long-tail" financial implications and 
benefits. The Partnership, therefore, operates as a catalyst among the 
three stakeholders to achieve the program goals by implementing the 
program requirements and activities including, but not limited to:  

- required 5% compounded inflation protection for those at purchase age 
lower than 80; 

- a minimum daily benefit requirement, which is higher than the 
traditional LTC insurance minimum requirement; 

- a minimum time duration requirement; Partnership insurance must 
provide minimum benefit duration coverage periods to ensure avoidance 
of Medicaid for specific time durations as a cost-saving component; 

- ongoing public education and information dissemination activities; 

- mandatory agent training; and: 

- the consumer safeguard of a denied benefit authorization review 
process, independent from insurers, with binding arbitration as a final 
step. 

In terms of NYS Partnership insurance benefits, there are no 
comparable, traditional LTC insurance products available in NYS. The 
GAO report correctly concludes that the NYS Partnership provides 
quality consumer protections. However, the GAO analysis on Medicaid 
cost savings used a set of operational assumptions which do not reflect 
the profile of NYS Partnership purchasers, the program experience, or 
the characteristics of the NYS Medicaid program. 

2. Comments Specific to the Operational Assumptions and Fiscal 
Analysis: 

The fiscal analysis presented in the GAO report attempts to compare a 
Partnership fiscal scenario with two scenarios that would exist in the 
absence of the Partnership: the traditional LTC insurance scenario and 
the self-insuring LTC scenario. However, the report scenarios are 
based, in part, on the authors' interpretation of results of surveys 
administered in California and Connecticut. From these surveys, the 
report concludes that 80% of current Partnership insureds would have 
purchased traditional LTC insurance, whereas 20% would pay for their 
LTC out-of-pocket. 

In 1995, the NYS Partnership conducted a mail survey of 5,215 
Partnership purchasers (52% response rate). Responders to the question 
about how they would have paid for LTC in the absence of the 
Partnership indicated: 25% - "Medicaid Estate Planning", and 21 % - 
"non-Partnership insurance." Similar results have been found in the 
December 2006 survey of 1,200 Partnership insureds (35% response rate); 
i.e., Medicaid Estate Planning (24%) and non-Partnership insurance 
(19%). 

Thus, one-quarter of all Partnership purchasers who responded in each 
of the NYS surveys indicated they would have transferred their assets 
in order to qualify for Medicaid in the absence of the Partnership. 
Yet, this asset transfer group is ignored in the development of the GAO 
scenarios. This estate planning group represents cost savings of 100% 
to the Medicaid program under the Partnership programs since Medicaid 
would have paid for their care from the beginning of their LTC 
episodes. In addition, only about one-fifth of NYS purchasers who 
responded to the NYS surveys indicated they would have purchased non- 
Partnership insurance in contrast to the 80% stated in the GAO report. 

The GAO report also indicates a lack of data to identify who would 
qualify for Medicaid among the self-insuring population. During the 
development phase of the NYS Partnership program, the NYS Partnership 
conducted a Nursing Home Discharge Survey to gain an understanding of 
the nursing home population in NYS. The survey results indicated that 
among NYS nursing home residents aged 65 and over, private-pay 
residents accounted for only 38% at admission, whereas Medicaid and 
Medicare clients represented 58% and 4%, respectively. One-third (33%) 
of those private-pay residents at admission eventually became Medicaid 
recipients with their average length of time to Medicaid being 9.8 
months (median) or 15.8 months (mean). Since the time of this survey, 
the private pay nursing home cost has rapidly increased in NYS with the 
current statewide average cost approaching $100,000. We, therefore, 
confidently expect that the nursing home spend-down period has 
shortened, and the prevalence rate of spend-down among private-pay 
residents has increased. 

In order to understand the fiscal impact of the NYS Partnership on NYS 
Medicaid, both the profile of NYS Partnership purchasers and NYS 
Medicaid characteristics should be incorporated into any analysis of 
Medicaid cost-savings. 

NY Partnership Cost Savings Analysis: 

Given the following New York Specific circumstances: 

- current NYS Partnership enrollment statistics (45,000 enrollees aged 
55 and over), 

- a methodology which reflects NYS survey information, 

- NYS Medicaid nursing home payment characteristics, and: 

- the assumption of no Medicaid cost incurred by traditional LTC 
insurance policyholders, 

our own analysis indicates that the NYS Partnership currently will help 
NYS Medicaid avoid, on average, three nursing home months per 
policyholder, which would have otherwise been the responsibility of the 
Medicaid program in the absence of the NYS Partnership. 

Another consideration for Medicaid cost-savings with the NYS 
Partnership is that the transfer penalty applies only to those seeking 
Medicaid for institutional care. In non-institutional settings, one 
could reasonably assume that many who may have no knowledge of this 
transfer rule would come to rely on Medicaid estate planning, absent 
the Partnership program, in order to finance their home care. 
Therefore, Medicaid savings under a home care scenario would be much 
higher than for the nursing home scenario in NYS. 

In addition, the federal spousal refusal provision (Section 1924(c)(3) 
of the Social Security Act) allows the healthy spouse to retain 
resources that would otherwise be available to the Medicaid spouse's 
care. Without the Partnership option, one could also reasonably assume 
that more New Yorkers may use spousal refusals, creating further 
Medicaid expense. 

These comments highlight NYS' issues and concerns regarding the 
modeling scenarios used in the GAO report, and the report's conclusion 
of minimal Medicaid cost-savings under the Partnership. Based on the 
NYS experience described in our comments, NYS has carefully planned and 
fully expects its Partnership program to contain Medicaid costs for LTC 
through the increasing enrollment of New Yorkers in the Partnership 
program. 

Thank you again for the opportunity to review and comment on this 
report before its release. If you have any questions about these 
comments, please do not hesitate to contact Adrianna Takada, Director 
of the NYS Partnership program at 518-474-0662. 

Sincerely, 

Signed by: 

Mark Kissinger: 
Deputy Commissioner: 
Office of Long Term Care: 
Phone: (518) 402-5673: 
Fax: (518) 486-2564: 
E-mail: mlk15@health.state.ny.us: 

Enclosure: 

[End of New York Comment letter] 

[End of section] 

Appendix V: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

John E. Dicken (202) 512-7119 or dickenj@gao.gov: 

Acknowledgments: 

Christine Brudevold, Assistant Director; Krister Friday; Michael 
Kendix; Julian Klazkin; Elijah Wood; and Suzanne Worth made key 
contributions to this report. 

FOOTNOTES 

[1] For the purposes of this report, we use the term "Partnership 
policies" to refer to long-term care insurance policies purchased 
through Partnership programs and the term "traditional long-term care 
insurance" to refer to long-term care insurance policies that are not 
purchased through these programs. To refer to both Partnership and 
traditional long-term care insurance policies, we use the term "long- 
term care insurance." 

[2] A state plan describes the state's Medicaid program and establishes 
guidelines for how the state's Medicaid program will function. 

[3] For our purposes we use the Partnership program's definition of 
"assets," that is, when we refer to assets, we mean savings and 
investments, while excluding income. For eligibility purposes, the 
Medicaid program considers both income--which is anything received 
during a calendar month that is used or could be used to meet food or 
shelter needs--and resources, which are cash or anything owned, such as 
savings accounts, stocks, or property that can be converted to cash. 

[4] Another objective of OBRA '93, as expressed in the accompanying 
House of Representatives Budget Committee report, was to close a 
loophole permitting wealthy individuals to qualify for Medicaid. H.R. 
Rep. No. 103-111, at 536. 

[5] Prior to the enactment of OBRA '93, California, Connecticut, 
Indiana, and New York established Partnership programs. Iowa and 
Massachusetts also received permission from the Health Care Financing 
Administration (now CMS) to establish a Partnership program, but had 
not implemented one as of October 2006. 

[6] When we refer to the four states with Partnership programs or the 
four states, we are referring to California, Connecticut, Indiana, and 
New York. According to CMS officials, as of October 2006, no other 
states had active Partnership programs; that is, no insurance companies 
were issuing Partnership policies in any other states. 

[7] Congressional Budget Office Cost Estimate: S. 1932 Deficit 
Reduction Act of 2005, at 36-39, January 27, 2006. 

[8] GAO, Overview of the Long-Term Care Partnership Program, GAO-05-
1021R (Washington, D.C.: Sept. 9, 2005). 

[9] The UDS is a data set developed by the four states with Partnership 
programs; participating insurers; the National Program Office at the 
Center on Aging, University of Maryland; and the Program Evaluator, 
Laguna Research Associates. Data in the UDS are submitted by insurers 
to the Partnership program in the state in which they are participating 
and contain information on Partnership policyholders. 

[10] We selected the five insurance companies on the basis of the total 
number of policies and amount of annualized premiums in effect in the 
individual market as of December 31, 2004. 

[11] For income and asset data in California we combined data for 2003 
and 2004, and for Connecticut, we combined data for 2002 through 2005. 

[12] To make our income analysis consistent across the different data 
sources, we restricted our calculations of household income to 
individuals aged 55 and over. 

[13] The Health and Retirement Study (HRS) is a longitudinal national 
panel survey that collects information over time on individuals over 
age 50. The first survey was conducted in 1992, and subsequent surveys 
were conducted every 2 years. The most recent survey for which data 
were available was 2004. 

[14] New York State survey data were unavailable. 

[15] GAO, Medicaid Long-Term Care: Few Transferred Assets before 
Applying for Nursing Home Coverage; Impact of Deficit Reduction Act on 
Eligibility Is Uncertain, GAO-07-280 (Washington, D.C.: Mar. 26, 2007). 

[16] As people age, they typically experience a decline in their 
ability to perform basic physical functions, increasing the likelihood 
that they will need long-term care services. Individuals qualify for 
Medicaid coverage for long-term care services if they meet certain 
functional criteria that in general involve a degree of impairment 
measured by the level of assistance an individual needs to perform six 
activities of daily living (ADL): eating, bathing, dressing, using the 
toilet, getting in and out of bed, and getting around the house, as 
well as the instrumental activities of daily living (IADL), which 
include preparing meals, shopping for groceries, and venturing outside 
of a home or facility. 

[17] Long-term care services, such as personal care, homemaker 
services, and respite care, are known as home care. Home care can also 
include services provided outside of policyholders' homes, such as 
services provided in adult day care centers. Long-term care services 
provided in community-based facilities are generally designed to help 
people receive long-term care and remain living in their own homes. 
Known as community-based services, these long-term care services can be 
supplied in settings such as policyholders' homes, adult day care 
facilities, or during visits to a physician's office. 

[18] P. Kemper, H.L. Komisar, and L. Alecxih, Long-Term Care Over an 
Uncertain Future: What Can Current Retirees Expect? Inquiry, vol. 42, 
no. 4 (Winter 2005/2006) pp. 335-350. 

[19] MetLife Mature Market Institute, The MetLife Market Survey of 
Nursing Home & Home Care Costs (September 2005). 

[20] Department of Health and Human Services, Centers for Disease 
Control and Prevention, National Center for Health Statistics, The 
National Nursing Home Survey: 1999 Summary, Series 13, No. 152 (June 
2002). 

[21] GAO analysis of data provided by five insurance companies selling 
traditional long-term care insurance: see GAO, Long-Term Care 
Insurance: Federal Program Compared Favorably with Other Products, and 
Analysis of Claims Trend Could Inform Future Decisions, GAO-06-401 
(Washington, D.C.: March 2006). 

[22] See GAO-06-401. 

[23] The process of reviewing medical and health-related information 
furnished by an applicant to determine if the applicant presents an 
acceptable level of risk and is insurable is known as underwriting. 
Examples of medical conditions that may not disqualify an individual 
from obtaining insurance but that can result in a substandard rating 
during the underwriting process include osteoporosis, emphysema, and 
diabetes. However, the severity and the ability to control and treat 
the medical condition are all factors that can also impact how a 
nondisqualifying medical condition impacts an underwriting rating. 

[24] Pub. L. No. 104-191, §§ 321-327, 110 Stat. 1936, 2054-2067. 

[25] Personal care includes long-term care services that help people 
meet personal needs such as assistance with personal hygiene, 
nutritional or support functions, and health-related tasks. 

[26] Under DRA, certain individuals with an equity interest in their 
home of greater than $500,000 are not eligible for Medicaid coverage 
for nursing facility services or other long-term care services. 
However, states have the option to increase the home equity interest 
level to an amount that does not exceed $750,000. This home equity 
limitation does not apply to individuals if they have a spouse, a child 
under age 21, or a child who is blind or disabled living in the home. 

[27] For asset transfer purposes, Medicaid defines the term "assets" to 
include income and resources, such as bank accounts. 

[28] See GAO-07-280. 

[29] The median amount of cash transferred by non-Medicaid-covered 
residents during the 4 years prior to nursing home entry was $1,859. 
During the 2 years prior to nursing home entry, the median amount 
transferred for both non-Medicaid-covered residents and Medicaid- 
covered residents was $2,194. 

[30] Iowa and Massachusetts received approval from the Health Care 
Financing Administration (now CMS) to establish Partnership programs, 
but programs were not functioning in these states as of October 2006. 
Since enactment of DRA, a Partnership program in Idaho was approved by 
CMS, though the program was not functioning as of October 2006. Also, 
as of that date, amendments to state Medicaid plans allowing 
Partnership programs in Florida, Georgia, Minnesota, and Nebraska were 
under review at CMS. 

[31] For the purposes of this report, we use the term "accessing 
Medicaid" to describe the point at which long-term care policyholders 
first begin receiving Medicaid payments for their long-term care. 

[32] Partnership program offices reported that about 235,000 
Partnership policies had been sold since the four Partnership programs 
began, but that number included people who subsequently dropped their 
policies within 30 days of purchasing the product. The four states with 
Partnership programs give Partnership policy purchasers a 30-day "free 
look" period during which they can decide whether to keep their policy 
or drop it and receive a full refund. 

[33] By state, the number of Partnership policies, excluding those that 
were dropped, was 73,811 in California and 33,040 in Connecticut, 
through March 2006; 31,750 in Indiana through June 2006; and 51,262 in 
New York through December 2005. 

[34] This rate of increase varied across the states: the sales of 
Partnership policies in California increased by 14 percent--the largest 
percentage increase among the Partnership states--compared with 
increases of 7, 9, and 8 percent in Connecticut, Indiana, and New York, 
respectively. 

[35] DRA requires Partnership policies to provide compound inflation 
protection for individuals younger than 61. For individuals younger 
than 76, Partnership policies must provide policyholders with some 
level of inflation protection, although not necessarily compound 
inflation protection, while inflation protection is an optional feature 
for Partnership policyholders aged 76 or older. Pub. L. No. 109-171, § 
6021(a)(1), 120 Stat. 68 (codified at 42 U.S.C. § 1396 
p(b)(1)(c)(iii)(IV)). 

[36] Some of the states that passed legislation prior to the passage of 
DRA to enable the creation of a Partnership program may need to make 
additional changes to meet DRA requirements. 

[37] According to CMS officials, policies in New York and Indiana may 
continue to provide this type of coverage. 

[38] There are some exceptions to the inflation protection requirement. 
For example, in New York, insurance companies are allowed to sell 
Partnership policies to policyholders 80 years of age or older without 
inflation protection. 

[39] In Indiana, Partnership policies are required to include either 
automatic compound inflation protection at 5 percent annually or in 
accordance with the consumer price index, or an inflation protection 
option that covers at least 75 percent of the average daily private pay 
rate. 

[40] New York requires minimum daily benefit amounts for traditional 
long-term care insurance policies. 

[41] The minimum amount paid under a Partnership policy for this dollar 
coverage can be no less than 70 and 75 percent of the average daily 
private pay rate for nursing facilities in California and Indiana, 
respectively. 

[42] This was for New York's total asset protection policies. The 
maximum elimination period for New York's dollar-for-dollar policies 
was 60 days. 

[43] In Connecticut and Indiana, the case management provision for 
Partnership policies is specific to home and community-based services. 

[44] In California, Indiana, and New York, nursing facility coverage 
also includes other settings that are similar to nursing facilities. 

[45] Traditional long-term care insurance policyholders cannot obtain 
asset protection through their policies. 

[46] The New York Partnership program does not conduct a review of 
Partnership policies. The New York DOI reviews all Partnership and 
traditional long-term care insurance policies. 

[47] Until recently, the Indiana Partnership program was housed in the 
Medicaid office and conducted an initial review of Partnership policies 
prior to the DOI review. As of September 2006, the Indiana Partnership 
program was housed in, and administered by, the DOI and there was only 
one review of Partnership policies, which was conducted by the DOI. 

[48] In order to continue to sell long-term care insurance in the four 
Partnership states, insurance agents must receive several hours of 
continuing education every 2 years. The required hours ranged from 5 
hours every 2 years in Indiana to 24 hours every 2 years in 
Connecticut. 

[49] In New York, the continuing education credits from the required 
Partnership policy training can be used to meet the DOI requirements 
for agent recertification for traditional long-term care policies. 

[50] Data from Indiana and New York are excluded from our income and 
asset comparisons. New York did not collect income or asset data for 
its Partnership program, while Indiana income and asset data were not 
detailed enough to make comparisons with other states. 

[51] Income data for Partnership policyholders in Connecticut were from 
2002 through 2005. Income data for Partnership policyholders in 
California were from 2003 to 2004. Data for all households in those two 
states were from 2004. We combined multiple years of these data in 
order to increase the sample size. 

[52] Because we did not have a direct measure of the population without 
long-term care insurance, we used the general population of all 
households as a proxy. Nationally, about 12 percent of the population 
over age 55 has long-term care insurance. Therefore we assume that the 
income information from all households in two states with Partnership 
programs-California and Connecticut-largely reflects the income and 
asset patterns of people without long-term care insurance. 

[53] The national-level data are from 2004. 

[54] To make this comparison, we used cumulative data from the 2002 
through 2005 UDS data sets on Partnership policyholders and data from 
the 2004 HRS survey. 

[55] This is consistent with CBO's estimate that repealing the 
moratorium on new Partnership programs could increase Medicaid 
spending. 

[56] The results for the individual states were 84 percent, 76 percent, 
and 57 percent for California, Connecticut, and Indiana, respectively. 
Using the number of respondents in each state to weight the 
calculation, the average for the three states combined was 
approximately 80 percent. 

[57] For example, 53 percent of Partnership policyholders in California 
and Connecticut had household assets of $350,000 or more. Approximately 
37 percent of Partnership policyholders purchased policies with a 3- 
year benefit period. 

[58] To qualify for Medicaid, individuals must meet a number of 
requirements, including their state's allowable asset limitation, 
excluding the amount of protected assets due to the Partnership policy. 
For 2006, these were $2,000 in California, $1,600 in Connecticut, 
$1,500 in Indiana, and $4,150 in New York. The situation is more 
complicated when the person has a spouse. For instance, regarding 
assets, when someone in an institution applies for Medicaid and they 
are married, Medicaid looks at all the assets of the couple, regardless 
of ownership (certain items such as the couple's home, personal and 
household property, one vehicle, and a small amount set aside for 
burial, are excluded). One half of the remaining countable assets, up 
to a maximum of approximately $100,000 in 2007, are then protected for 
the community spouse. Any remaining assets are then used to determine 
Medicaid eligibility for the spouse in the institution. 

[59] Individuals may choose a different set of benefits, depending on 
whether they select a traditional or Partnership program policy. In 
order to simplify our comparison of scenarios A and B, we assume that 
the benefits of a Partnership policy and a program traditional long- 
term care policy are the same, except for the asset protection benefit 
of the Partnership policy. 

[60] More than half of all Partnership policyholders in California and 
Connecticut combined reported assets of at least $350,000, which is 
more than the national average of about $210,000 that would be needed 
to pay for a 3-year stay in a nursing facility--the average stay being 
between 2 and 3 years. 

[61] Household assets may be jointly owned by a couple. In order for 
assets to be fully protected for the couple, both individuals need to 
have their own Partnership policies that insure all eligible assets 
because many individuals are no longer married by the time they require 
long-term care services, and the asset protection associated with a 
Partnership policy is not transferable. We do not consider a married 
couple to be overinsured when both individuals have long-term care 
insurance policies that are worth the value of their estate. 

[62] The Medicaid spousal exemption, also known as the community spouse 
resource allowance, permits the spouse remaining in the community to 
retain an amount equal to one-half of the couple's combined countable 
assets, up to a state-specified maximum level. In 2007, the federal 
maximum was $101,640; that is, states were allowed to set their 
community spouse resource allowance equal to a value no greater than 
this amount. Medicaid eligibility of the institutionalized spouse is 
determined using the remaining assets. 

[63] This finding was based on our review of the prevalence of asset 
transfers among 465 approved applicants in three states. See GAO-07-
280. 

[64] Specifically, the Medicaid eligibility thresholds in the four 
states with Partnership programs were $600 in California, $619 in 
Indiana, $1,809 in Connecticut, and $692 in New York in 2006. If 
individuals were in a nursing facility, they were permitted to keep a 
personal allowance amount to cover incidental purchases in the nursing 
facility. The personal allowances for individuals in nursing facilities 
in 2006 were $35 in California, $52 in Indiana, $61 in Connecticut, and 
$50 in New York. 

[65] In this particular example, our criterion for being among the 
wealthiest people is those people whose assets are in the highest 25 
percent. 

[66] It is possible that Partnership policyholders with higher incomes 
could meet Medicaid income thresholds because the four states with 
Partnership programs allow individuals to deduct medical expenses from 
their income when determining Medicaid eligibility. However, the 
individuals would still need to contribute their income toward the cost 
of care. Therefore, this limits Medicaid's liability for individuals 
with higher incomes. 

[67] See GAO-07-280. 

[68] See GAO-07-280. 

[69] The HRS analysis was based on transfers during the 4 years prior 
to nursing home entry by elderly nursing home residents who were 
Medicaid-covered. The analysis of a sample of Medicaid applications in 
three states was based on transfers during the 3-year look-back period 
by approved Medicaid applicants. 

[70] One survey question asks: "Did the [partnership program] influence 
your decision to purchase long-term care insurance? (yes or no)." The 
other asks: "Why did you decide to purchase long-term care insurance?" 
Eight response options are provided, one being "As an alternative to 
transferring assets to qualify for Medicaid." 

[71] The California, Connecticut, and Indiana surveys asked: "Would you 
have purchased long-term care insurance in the absence of the 
Partnership?" (yes or no). 

[72] Whereas California, Connecticut, and Indiana surveys asked: "Would 
you have purchased long-term care insurance in the absence of the 
Partnership?" (yes or no), New York's survey asked: "Had you not 
purchased Partnership insurance, what would be your plan to pay for LTC 
you may need?" Seven response options were provided, one being "I would 
purchase non-Partnership long-term care insurance." 

[73] This part of UDS data contains information on each person who 
applied for a Partnership policy and who passed the underwriting 
process. 

[74] AEGON USA left the long-term care insurance market on March 31, 
2005. 

[75] We restricted our analysis of income to people age 55 and older 
because long-term care policies tend to be purchased by people in their 
late 50s or early 60s, and people in this age group may have a 
different level of income compared to the average for the population as 
a whole. 

[76] We used constant dollars in our scenarios. This means that the 
purchasing power of dollars in our scenarios is constant over time. We 
also hold the individual's assets at a fixed dollar amount over time. 

[77] In our illustrative scenarios, we assume the individual spends his 
or her assets to zero. In other words, we disregard the effect of 
Medicaid allowing beneficiaries to retain some assets. We address the 
effect of adjusting this assumption in this appendix. 

[78] Some of these individuals may be married and the household assets 
may be shared. In order for the assets to be fully protected for 
married individuals, both individuals need to have a Partnership 
policy. Partnership policies are not transferable, and if a surviving 
spouse of a Partnership policyholder requires long-term care and does 
not have a Partnership policy, the assets would not be protected. 

[79] California Department of Health Services, California Partnership 
for Long-Term Care, "Year 2005 Partnership vs. Non-Partnership 
Comparison of Insurance Policy Sales", Raul Moreno, July 2006. 

[80] California Department of Health Services, California Partnership 
for Long-Term Care, Issuers Bulletin 2007, November 2006. 

[81] California Department of Health Services, California Partnership 
for Long-Term Care, Purchaser Survey 2005, Annual Report, September 
2006. 

[82] These figures are based on all available Connecticut purchaser 
survey data and may differ slightly from data used in the GAO report 
which was based on Connecticut purchaser survey data for a selected 
time period. 

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