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Question:

Are 401(k)s or IRAs protected under the LTCI Partnership program?

Response:

Probably, yes. The long-term care insurance (LTCI) partnership program was authorized by Congress to permit states to grant higher asset limits for Medicaid eligibility for residents who own LTCI policies. It is intended as an incentive for people to buy LTCI. For most state programs, the way it works is that the asset limit is increased to the value of the LTCI insurance. So, if an applicant for Medicaid has used up, for example, $300,000 of LTCI benefits on their care, they can qualify for Medicaid when they still have $300,000 in countable assets, rather than being subject to the usual $2,000 asset limits.

About half the states offer some form of an LTCI partnership program. While each sets its own rules, I would be surprised if it treated 401(k) plans or IRA assets any differently from other assets, so they should be protected.

Massachusetts has a unique form of an LTCI partnership program. Instead of qualifying LTCI permitting the applicant to shelter assets from having to be spent down for Medicaid (called MassHealth in Massachusetts) eligibility, it instead protects the nursing home resident’s home from being subject to Medicaid estate recovery upon their death. But there’s a catch-22. Normally, people applying for Medicaid state that they intend to return home on their application for benefits. This intent protects the home from being treated as a countable asset. However, in order to get the MassHealth estate recovery protection, the applicant for benefits must state that they do not intend to return home. The house is still protected from having to be sold due to their ownership of LTCI, and as a result is also protected from estate recovery. I don’t know how many MassHealth beneficiaries actually take advantage of this rather arcane protection.

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