State-by-State LTC Partnership Programs: How to Protect Your Assets

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State LTC Partnership Programs -- Hollowtree blog

What Are LTC Partnership Programs?

Partnership programs work hand-in-hand with broader Medicaid planning and LTC insurance coordination strategies, creating a comprehensive approach to long-term care financial protection.

Long-Term Care Partnership programs represent a collaboration between state governments and the private insurance industry designed to encourage individuals to purchase private long-term care insurance rather than relying solely on Medicaid as a safety net for long-term care costs.

The core concept is straightforward: if you purchase a Partnership-qualified LTC insurance policy and exhaust your benefits, you can apply for Medicaid to continue funding your care while protecting personal assets from Medicaid's spend-down requirements. The amount of assets you can protect is equal to the amount of benefits your Partnership policy paid out.

This asset protection feature addresses one of the most common objections to purchasing LTC insurance: the fear that if the policy's benefits run out, the individual would still have to deplete their savings before qualifying for Medicaid. With a Partnership policy, the money spent on premiums effectively "buys" asset protection that persists even after policy benefits are exhausted.

The History and Legal Framework

LTC Partnership programs originated in the early 1990s when four states, California, Connecticut, Indiana, and New York, established pilot programs with federal approval. These original programs operated under specific waivers from the federal government.

The Deficit Reduction Act of 2005 (DRA) expanded the Partnership concept nationwide, allowing all states to establish Partnership programs that conform to federal requirements. Since the DRA's enactment, most states have implemented Partnership programs, though the specific rules and implementation details vary.

As of 2025, Partnership programs are available in over 40 states plus the District of Columbia. Notable exceptions include a handful of states that have not yet implemented programs. The availability and specific rules should be verified for your state of residence, as programs continue to evolve.

How Asset Protection Works

Dollar-for-Dollar Protection

In most Partnership states (those that adopted programs under the DRA framework), asset protection is provided on a dollar-for-dollar basis. For every dollar of benefits your Partnership-qualified LTC insurance policy pays, you can retain one dollar of assets that would otherwise need to be spent down to qualify for Medicaid.

For example, if your Partnership policy pays $300,000 in benefits before being exhausted, you can apply for Medicaid while retaining $300,000 in countable assets above Medicaid's normal asset limits. Without a Partnership policy, you would generally need to spend down assets to approximately $2,000 (the limit varies by state) before qualifying for Medicaid.

Total Asset Protection (Original States)

The four original Partnership states (California, Connecticut, Indiana, and New York) operate under different rules. Indiana's original program offered dollar-for-dollar protection similar to the DRA model. New York's original program offered total asset protection, meaning that regardless of the amount of benefits paid, the policyholder could retain all assets when applying for Medicaid. California and Connecticut had their own specific formulations.

Total asset protection is significantly more generous than dollar-for-dollar protection. A New York Partnership policyholder who receives $200,000 in benefits could still retain $2 million in assets when applying for Medicaid. This generous protection has made Partnership policies particularly popular in New York.

Income Requirements Still Apply

Partnership asset protection applies to the asset test for Medicaid eligibility, not the income test. Applicants for Medicaid must still meet income requirements, which vary by state. In states with medically needy programs, individuals with income above the limit can still qualify by spending excess income on medical and care costs. In other states, income caps are strict.

Understanding how both asset and income tests apply in your state is important for comprehensive Medicaid planning.

Qualifying for Partnership Protection

Policy Requirements

To qualify for Partnership asset protection, an LTC insurance policy must meet several requirements established by the DRA and implemented through state regulations. The policy must be tax-qualified under IRC Section 7702B. It must include inflation protection appropriate to the purchaser's age. It must be issued by an insurer approved for Partnership business in the state. The policyholder must be a resident of the state at the time of policy purchase.

Inflation protection requirements are age-banded in most states. Purchasers under age 61 are generally required to have compound annual inflation protection. Purchasers aged 61 to 75 may satisfy the requirement with some level of inflation protection (compound or simple). Purchasers over age 76 may be permitted to purchase Partnership policies without inflation protection.

These inflation protection requirements are designed to ensure that Partnership policies maintain meaningful benefit levels by the time care is needed, which supports the program's goal of reducing Medicaid expenditures.

Reciprocity Between States

One of the key features built into the DRA framework is interstate reciprocity. If you purchase a Partnership-qualified policy in one state and later move to another Partnership state, your asset protection should be recognized by the new state. However, the level of protection may be adjusted based on the new state's rules.

In practice, reciprocity has not been uniformly implemented, and there can be complications when moving between states. Working with an advisor who understands Partnership rules in both the current and potential future states of residence is important for individuals who may relocate.

Who Benefits Most From Partnership Programs

Middle-Income Individuals and Families

Partnership programs are specifically designed for the middle market: individuals who have accumulated enough assets that Medicaid spend-down would be financially devastating but not enough to comfortably self-insure for potentially years of long-term care costs.

For a retired couple with $600,000 in combined savings, the prospect of spending down to near-zero to qualify for Medicaid is terrifying. A Partnership policy that pays $400,000 in benefits would allow them to retain $400,000 in assets, providing a meaningful financial cushion even after policy benefits are exhausted.

Individuals Concerned About Premium Risk

One of the persistent concerns about LTC insurance is the risk of premium increases. Partnership programs provide a partial answer: even if premium increases cause a policyholder to reduce their coverage, the asset protection earned from whatever benefits are paid still applies. The policy does not need to pay out its full original benefit amount for the Partnership protection to work; any benefits paid create proportional asset protection.

Estate Planning-Oriented Consumers

For individuals who want to protect assets for inheritance or charitable giving, Partnership programs offer a mechanism to preserve wealth while still accessing Medicaid if LTC insurance benefits are exhausted. This makes Partnership policies a component of estate planning as well as care planning.

Limitations and Considerations

Medicaid Care Quality Concerns

The Partnership model assumes that Medicaid will be available to fund care after private insurance benefits are exhausted. However, Medicaid-funded care may offer fewer choices than privately funded care. Not all assisted living communities accept Medicaid, and those that do may have limited availability. Nursing facilities that accept Medicaid may have different staffing and amenity levels than private-pay facilities.

Policyholders should not rely solely on Partnership protection without understanding the care options available through Medicaid in their state.

Medicaid Estate Recovery

Partnership asset protection shields designated assets from Medicaid's estate recovery program, which normally allows states to seek reimbursement from the estates of deceased Medicaid recipients. Protected assets pass to heirs free from estate recovery claims, which is a significant benefit for estate planning.

Program Uncertainty

Partnership programs are creatures of state and federal law, and future legislative changes could modify or eliminate the programs. While existing policyholders would likely be grandfathered under any changes, there is no absolute guarantee that the rules in effect when a policy is purchased will remain unchanged decades later when benefits are needed.

Working With an Advisor

Partnership-qualified LTC insurance policies are available from most major LTC insurance carriers, and the premium for a Partnership policy is generally similar to a comparable non-Partnership policy. The decision to purchase Partnership-qualified coverage is typically straightforward since it provides additional protection at little or no additional cost.

To better understand the foundational concepts behind LTC insurance, review what long-term care insurance is and why it matters. An independent insurance advisor can help identify Partnership-qualified options in your state, explain how the asset protection interacts with your specific financial situation, and coordinate LTC insurance planning with broader estate and Medicaid planning strategies. For middle-income families, Partnership programs represent one of the most valuable features available in the LTC insurance marketplace.

Contact Hollowtree to discuss Partnership-qualified LTC policies in your state.

Contact Hollowtree to discuss Partnership-qualified LTC policies available in your state. Our independent advisors can coordinate LTC planning with your broader financial strategy.

References

CMS - Long-Term Care Partnership Program

National Conference of State Legislatures - LTC Partnership

NAIC - LTC Partnership Programs Guide